Agricultural Commodities: Why You Need To Be Bullish

One of the sectors that is making waves in 2008 is the Agricultural Commodities. Emerging markets are booming and so are their consumption. With growth comes a change in lifestyle, diet being an important part of it. The rising middle-class in these emerging markets especially China and India are now calling for both higher quantities and a better quality of food. With industrialization and urban sprawl taking over, Chinese and Indian farmers are continually asked to produce more crops from shrinking amounts of land. They also have fewer farm workers as many have left villages to seek their fortune in more established cities. If you add environmental pressures to the mix, you’ve got an agricultural situation that’s even more challenging.

It’s estimated that one out of every three dollars earned in China is spent on food. Why? Because the dietary habits of Chinese are changing. People are switching from starch-based diets (rich in grains and vegetables) to protein-rich diets (which contain more meat). This is a natural shift that many countries experience when moving through the various stages of economic development.

This shift is best illustrated by the rising meat consumption in China. Meat consumption there has tripled over the last two decades and continues to grow at 4%–5% per year. As a result, farmers must produce increasing amounts of grain to feed livestock. In order to grow these grains, farmers can’t rely on ground nutrients alone; they need fertilizer.

With 850 million farmers challenged to feed over 1.3 billion people, China consumes more fertilizer than any other country. Making things complicated is the fact that much of western China is unusable for crop production because of barren land that’s too remote because of a lack of suitable transportation and infrastructure. As a result, southeastern China is the main home to much of the country’s agriculture. Farmers in this region often double- and triple-crop their land in order to produce more rice, fruits and vegetables—all of which depend on fertilizer to grow.

Fertilizer isn’t just used to grow food crops—it’s also used to grow products for other industries. The push for developing eco-friendly biofuels in China is huge right now. Given that biofuels are mainly made from natural plant-based sources like corn, soybeans and sugarcane, these plants require farmers to buy even more fertilizer.

Increasing demand for food, animal feed and biofuels is providing a very positive outlook for the fertilizer industry. It is expected that China’s fertilizer demand will grow by 15% to 20% per year over the next five years. The spike in Chinese fertilizer demand combined with the country’s limited land resources will help propel fertilizer companies.

Listed are six quality fertilizer companies that will benefit from this emerging market demand.

  1. Syngenta AG (SYT) is an agribusiness that is involved in the discovery, development, manufacture and marketing of a range of products designed to improve crop yields and food quality. Syngenta is also engaged in the development of products for markets, such as Seed Care, Lawn and Garden, Professional Pest Management, Vector Control and Public Health.
  2. Agrium Inc. (AGU) is an agricultural retailer and fertilizer producer. The Company operates through three segments: Retail, Wholesale and Advanced Technologies. Through the Retail business segment, the Company operates a network of 436 retail centers in the United States, Argentina and Chile and is an agricultural distributor of seed, agricultural chemicals and fertilizer direct to growers in the United States. Its Wholesale business segment produces and markets seven million product tons of nutrients. The Advanced Technologies business segment is engaged in developing and supplying controlled-release, or coated fertilizer, technologies and products. These products are used in the agriculture industry, as well as for home and garden, turf and golf courses.
  3. Potash Corporation of Saskatchewan Inc. (POT) is an integrated fertilizer and related industrial and feed products company. The Company’s potash operations represented an estimated 15% of global production, 22% of global potash capacity and 55% of global potash excess capacity.
  4. Monsanto Company (MON), is a global provider of agricultural products for farmers. The Company’s seeds, biotechnology trait products, and herbicides provide farmers with solutions that improve productivity, reduce the costs of farming, and produce better foods for consumers and better feed for animals. It has two segments: Seeds and Genomics and Agricultural Productivity. Through its Seeds and Genomics segment, it produces seed brands, including DEKALB, Asgrow, D&PL, Deltapine and Seminis, and it develops biotechnology traits that assist farmers in controlling insects and weeds. It also provides other seed companies with genetic material and biotechnology traits for their seed brands. Through its Agricultural Productivity segment, it manufactures roundup brand herbicides and other herbicides and provides lawn-and-garden herbicide products for the residential market and animal agricultural products focused on improving dairy cow productivity.
  5. The Mosaic Company (MOS) is a producer of phosphate and potash combined, as well as nitrogen and animal feed ingredients. The Company operates its business through four business segments: phosphates, potash, offshore and nitrogen. The Phosphates segment produces phosphate fertilizer. The Potash segment mines ad processes potash in Canada and the United States and sells potash in North America and internationally. The Offshore segment produces and markets fertilizer products and provides other ancillary services to wholesalers, cooperatives, independent retailers, and farmers in South America and the Asia-Pacific regions. The Nitrogen segment consists of its equity investment in Saskferco and Mosaic’s nitrogen sales and distribution activities.
  6. CF Industries Holdings Inc. (CF) is a manufacturer and distributor of nitrogen and phosphate fertilizer products in North America. The Company’s operations are organized into two business segments: the nitrogen fertilizer business and the phosphate fertilizer business. Its principal products in the nitrogen fertilizer business are ammonia, urea and urea ammonium nitrate solution. Its principal products in the phosphate fertilizer business are diammonium phosphate (DAP) and monoammonium phosphate (MAP). CF Holdings’ core market and distribution facilities are concentrated in the midwestern United States grain-producing states.
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