3 Fertilizer Stocks to Play the Global Population Boom

Tony Sagami

All of us have enduring childhood summer memories.

I remember the sweet taste of fat, wild blackberries we picked by the Puyallup River, the neighborhood pickup game of baseball in the cow pasture, family picnics at Surprise Lake, clam digging in Hood Canal, and the summertime stink of rotting cow blood.

Rotting blood?

Long-time readers know that I was raised on a vegetable farm in western Washington. Our main crops were radishes and green onions.

Our family farm was small, and my parents worked like the devil to scratch a living out of its soil. Life wasn't easy, but we never went hungry and my parents found a way to send all three of their children to college by hard work and frugal spending.

One way my father stretched a dollar was to avoid what he called 'store bought' fertilizer and used cow blood from a nearby cattle slaughterhouse instead. I remember being unable to fall asleep in August because the combination of the hot August sun and acres of farm land drenched with cattle blood created a horrible stench.

Heck, my father would have probably told us to poop in the fields if he thought it was sanitary and would have saved him a couple bucks!

Smelly or not, every farmer needs to use fertilizer and the most-used and most-important fertilizer is potash.

Potash is important because crops treated with potash are extremely high yielding. Potash also improves water retention, nutrient value, taste, color, texture, and disease resistance of food crops.

It is used for fruit and vegetables, rice, wheat and other grains, sugar, corn, soybeans, palm oil and cotton.

Potash is extracted from sedimentary salt beds formed by evaporation of ancient seas and is an essential element for all living organisms. Potash is not your typical fertilizer in that it is mined just like metals and looks like a crystallized rock before processing.

Plus, there is no substitute for potash. That's why even my frugal father bought some to supplement the cattle blood. That is why potash is one of the commodities that I am the most bullish on.

Global Population Growth

Potash is not a typical fertilizer. It is mined.

Source: Mining-technology.com
Potash is not a typical fertilizer. It is mined.

The world's population is growing. There are approximately 6.6 billion people on our planet, and that number is expected to grow to 8.2 billion by 2030, according to the United Nations.

That is a lot of mouths to feed, but the amount of food each mouth is eating is also increasing. The average human consumes about 2,600 calories a day, but the UN expects that number to climb to 3,000 calories by 2030.

That may not sound like much, but it is becomes a mammoth number when multiplied by billions of people. The world's daily caloric intake is going to surge from 17.1 trillion calories a day to 24.6 trillion.

Investing in the fertilizer business may not sound sexy, but the dynamics and fundamentals of the food business will turn it into one of the most profitable sectors you could find.

Rising Incomes = Higher Protein Consumption

Along with population growth, global incomes are also growing. This is especially true in China.

The Chinese are quickly becoming more affluent. In 2004, the average China's Gross Domestic Product per capita was just $1,000. By 2010, it more than doubled to $2,300.

What's the first thing you would buy if your income went from subsistence to middle class? A Mercedes? A Rolex? For most people, the first thing is better food.

Rising incomes are driving a dramatic change in Chinese eating habits. The middle class is no longer content to eat bowls of rice and cabbage with an occasional pig knuckle or chicken foot as a treat. They want fruit, candy, dairy products and particularly meat. FACT: Since 1980, per-capita meat consumption in China has nearly tripled

The wealthier a nation becomes, the more calories it consumes. That translates into more fertilizer demand to produce that food.

China's population is 1.3 billion, and its arable land is less than 1 acre per household vs. 100 acres in the United States.

As China's diet becomes more westernized by eating more protein, China has gone from being a net exporter to a net importer of food.

China's agriculture technology is far behind that of the United States, and one of the keys to improving its agricultural productivity is to use more fertilizer.

Potash makes it possible to supply more food to consumers and help farmers grow more and better food.

China Is a Potash Pig

China is the world's largest consumer of potash, according to Canpotex, a North American fertilizer trade group.

In fact China used 5.5 million tons of potash in 2010. That accounted for 20% of world demand.

This year, Potash demand is forecast to increase 18.3%, most of which will come from Canada.

Why Canada?

Potash is only found in significant quantities in Canada, Belarus and Russia, which means that the only stable supply for China is from Canadian producers.

Plus, it is cheaper to ship potash from Canada than from Russia, the second-largest producer. Freight from Canada is $20 to $30 a ton and $30 to $40 a ton from the Baltics and Russia.

How can you invest in potash?

The Potash Corporation of Saskatchewan (POT) is the world's largest fertilizer company, and produces fertilizer and animal feed products. Potash produces three primary plant nutrients: Potash, phosphate and nitrogen. Potash is, however, the main focus of its business.

Mosaic (MOS) isn't Canadian, but it is close by being based in Minnesota. Mosaic produces phosphate, nitrogen, and potash nutrients for use in crops and feed.

Calgary-based Agrium (AGU) makes a wide variety of agricultural nutrients including nitrogen, phosphate, sulphur, and potash as well as herbicides, fungicides, adjuvants and insecticides.

I'm not suggesting that you rush out and buy any of these stocks today. You need to do your own homework and decide whether any of them are appropriate for your personal situation and financial goals. However, if feeding the world's growing appetite is a sector that you want to include in your portfolio, these are three stocks very worthy of your attention.

Best Wishes,

Tony

P.S. If you are looking for more specific buy/sell recommendations on my favorite Asian stocks, please consider a subscription to my Asia Stock Alert for only $199 a year. I think it may be the best investment you'll ever make.


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Posted 02-18-2011 9:56 AM by Tony Sagami