- With the world population growing and emerging markets' demand
for meat increasing; the demand for crops has never been higher. With
this increased demand the nutrients in soil year after year are soaked
up and depleted by the crops planted and harvested. This leaves farmers
with no choice but to buy fertilizers to replenish their soil which is
why these three fertilizer stocks will continue to out-perform the
The combination of growth and quality of life is the main factor driving demand for fertilizers. Currently 50% of the world's population live in metropolitan areas. By 2050 it is expected that 66% of the population will be in metropolitan areas. In China it is estimated that urban consumers eat 75% more meat and 25% more fruit.
Why does eating more meat increase a fertilizer stock's price? These stocks offer important nutrients in their grain to help animals grow larger, faster, healthier and aid in milk production. The other reason is cows consume more grain than they give by eating protein. A U.S. cow will eat three pounds of grain to produce one pound of meat. Chickens eat two pounds of grain to produce one. Think of how much beef and chicken are in American diets; if the entire world consumed that much meat the demand for crops would skyrocket and already is.
Potash: is mined in underground mines from ancient evaporated sea beds. Some of the largest deposits in the world are in Saskatchewan. Potash improves the overall taste, texture and color of the crop. It also increases disease resistance and root strength. In animals it aids in milk production and growth.
Phosphate: is found in ancient sea fossils and helps speed crop maturity and photosynthesis. In animals it helps development and muscle repair.
Nitrogen: 78% of air is nitrogen, it is synthesized from the air using steam and natural gas. It helps speed plant growth and build enzymes. In animals it is important to DNA and cell maturity.
Potash (NYSE: POT) is the world's largest fertilizer producer by capacity it operates under three segments potash, phosphate and nitrogen. For the full year 2012 revenue was over 7.9 billion. It had a week fourth quarter due to lower international demand and fertilizer prices. Potash is starting to show good signs of rising dividends. A stronger dividend yield for the stock will help lower the price volatility and fluctuations. It is also experiencing less price volatility in its feed segment.
Because of the week demand in 2012 Potash is anticipating a strong 2013. With higher demand prices should swing up and help drive their stock price for this year. its 10-year return is 28.59% compared to the agricultural industry at -1.07%.
Mosaic (NYSE: MOS) Is a producer and marketer of fertilizer and animal feed, it operates in two segments potash and phosphate. It operates mines in Canada and the U.S. but sells its products internationally. For the full year 2012 it reported over 11 billion in revenue.
Mosaic is expected to continue record shipments for its phosphate and also the possibility of a food shortage as global demand currently outweighs production. This scenario would help push fertilizer prices higher and drive stock prices up. Its 10-year return is 23% and its current dividend yield is 1.40% with a recent increase from $0.05 a quarter to $0.25 this also signals Mosaic is starting to payout better dividends with its excess cash. As well with Potash a better dividend should help lower the price volatility these two stocks have experienced over the past few years.
Because of the current position Potash and Mosaic hold in the marketplace both of them are well positioned to meet the growing demand and reward shareholders for their investment. Both stocks are paying better dividends than historically and increasing them. Both stocks are also trading at better valuations then their five-year averages.
The biggest difference between these stocks is what happened in 2007 through 2008 although it was a very short period when fertilizer prices began going through the roof Potash constructed a skyscraper on the chart. Mosaic's was impressive too but Potash responded much greater and quicker to higher prices. For this reason Potash will be positioned to take advantage of higher prices more efficiently in the future and will continue to dominate the market place.
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