Special Report: How to Play Rising Food and Fertilizer Prices

Just a few years ago, the phrase “supply chain” was uncommon outside of corporate earnings calls and business school lectures. 

Then the COVID-19 pandemic disrupted the world’s supply chains, setting off a global wave of inflation and catapulting the once-obscure field of supply chain management into the headlines. 

In the last year, much has been written about the electronics supply chain. Indeed, a global semiconductor shortage has caused the price of laptops, cars, and a variety of other manufactured goods to skyrocket. 

But far less has been written about another kind of price hike... one that has far more serious implications than expensive laptops: Global food prices have been rising with dizzying speed since the pandemic began.

Global Food Prices Rising

Source: https://www.weforum.org/agenda/2021/06/global-food-prices-agriculture-palm-oil-cereal/ 

And just like the semiconductor shortage-driven electronics price hikes, food price hikes are largely being driven by a shortage of a key input: fertilizer

In this report, we’re looking at why fertilizer might be the hottest commodity of 2022 — and three fertilizer stocks you can buy to take advantage of this global trend. 

Fertilizer Got Expensive After the Last Recession — and It’s Doing It Again Today

This isn’t the first time fertilizer prices have spiked in the aftermath of a global economic catastrophe. 

In fact, many industry experts are comparing the current uptick with a similar one in 2008 — one in which prices stayed elevated above average levels for years. 

Fertilizer Cost

Source: https://www.fb.org/market-intel/too-many-to-count-factors-driving-fertilizer-prices-higher-and-higher 

So why does fertilizer spike in price after economic downturns? There are two main factors at play. 

First, fertilizer is a factory-made commodity that is heavily traded internationally — 44% of all fertilizer materials worldwide are exported to a different country.

Second, economic downturns tend to depress manufacturing and shipping volumes — and thus the supply of fertilizer. But they don’t depress food production; people have to eat, whether the economy is good or bad. 

This means, in effect, that downturns inevitably hit the supply of fertilizer harder than the demand for fertilizer — and thus prices go up. 

Of course, the COVID-19 downturn isn’t like other downturns — and the post-COVID fertilizer price spike is shaping up to be much bigger than the 2008 price spike. 

In part, that’s because the price of everything — including fertilizer inputs — is on the climb. Natural gas, the raw material from which ammonia is produced for fertilizer, is up more than 60% this year… 

Price of Everything

Source: https://markets.businessinsider.com/commodities/natural-gas-price 

With all this in mind, it’s no wonder Grand View Research expects the global nitrogenous fertilizer market to nearly double in size by the end of the decade. 

Below, we’re looking at three dividend-paying fertilizer stocks that may just be at the beginning of a major rally… 

CF Industries Holdings (NYSE: CF)

Founded in 1946 and based in Deerfield, Illinois, CF Industries is one of America’s largest fertilizer manufacturers and operates the largest nitrogen-producing complex in the world at its Donaldsonville, Louisiana, facility. 

CF is in a particularly strong position to take advantage of increased demand for fertilizer. In the last five years, it has grown its production capacity considerably through the acquisition of Terra Nitrogen Company and the expansion of its Donaldsonville and Port Neal, Iowa, plants. 

CF Industries Stock Chart

As you can see above, the company has had a fantastic run in the last year. As a result, its trailing 12-month price-to-earnings (P/E) ratio is a bit high (north of 40 at the time of writing). 

However, it has a reasonable debt-to-equity ratio of 67% and pays a $1.20-per-share dividend at a high but manageable payout ratio. 

Mosaic (NYSE: MOS)

Founded in 2004 and based in Tampa, Florida, Mosaic is America’s largest producer of potash and phosphate fertilizers. 

Like CF, Mosaic is ready to meet the excess demand for fertilizer as a result of several recent expansions and acquisitions, such as an in-progress upgrade to its New Wales, Florida, plant and its 2018 acquisition of Brazil’s Vale Fertilizantes. 

Mosaic Stock Chart

Mosaic shares have also had a great run in the last year — and yet they’re still quite cheap by most standards. The stock’s P/E ratio is under 10 at the time of writing, and it has a low debt-to-equity ratio (under 40% at the end of 2021). 

It also pays a $0.25-per-share dividend at a very low payout ratio. 

Nutrien (NYSE: NTR)

Founded in 2018 through a series of mergers and based in Saskatoon, Canada, Nutrien is the world’s largest producer of potash fertilizer and the third-largest producer of nitrogen fertilizer. 

In the second half of 2021, Nutrien increased its potash production by half a million metric tons to keep up with rising fertilizer demand. 

Nutrient Stock Chart

As with the other stocks we’ve discussed, Nutrien looks like it’s only starting to climb. It has a P/E ratio under 20 at the time of writing and a debt-to-equity ratio under 60%. 

It also pays a $1.83-per-share dividend at a payout ratio of less than 50%. 

A More Niche Stock to Play Rising Fertilizer Prices

The three companies we discussed above are market leaders in the fertilizer business, but they all also supply various other agricultural products and thus aren’t completely pure plays on rising fertilizer prices. 

If you’re looking for a more niche fertilizer investment — one with a chance at higher gains due to specialization — check out Junior Mining Trader. Editor Luke Burgess has been researching a small fertilizer company that is especially well-positioned to ride the coming wave. Click here to learn more. 

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