InvestorsHub Logo
Boards
News
Market Data
Markets
Discover
Discover
Subscribe Login/Register
S&P 500
5,039.42
(
0.42%
)
US TECH 100
16,932.20
(
0.42%
)
Dow Jones
38,092.72
(
0.50%
)
Brent Oil
83.06
(
-0.58%
)
Bitcoin
59,080.61
(
1.45%
)
Post# of 300
Next 10
Reply Private New
Public Reply Private Reply New Post
Keep Last Read
Replies (1) Keep Next 10 Report Keyboard Shortcuts
Replies (1) Next 10 Prev Next

rocketrice

Send PM Follow Ignore
Followers 11
Posts 2457
Boards Moderated 0
Alias Born 02/12/2007

rocketrice

Re: None

Friday, 03/21/2008 10:00:48 AM

Friday, March 21, 2008 10:00:48 AM

Post# of 300
The March 2008 WallStreet Resources newsletter

The Red Hot Fertilizer Industry March 2008

The United States fertilizer market is estimated to exceed $40 billion dollars annually and is comprised almost exclusively of synthetic chemistry1.
According to the Fertilizer Institute, average prices paid by U.S. farmers for the major fertilizer nutrients reached the highest level on record in January 2008, 130 percent higher than the January 2000 level. Fertilizer prices are being driven primarily by four factors: (1) global demand, (2) increased demand for corn and soy used in biofuel production, (3) higher transportation costs and (4) higher energy prices. In combination, this heightened demand for fertilizer coupled with soaring energy prices has created tight markets and higher prices.
Global Demand
Fertilizer is a worldwide commodity and the U.S. must compete with other buyers in the global marketplace. Fertilizers typically provide, in varying proportions, the three major plant nutrients (nitrogen, phosphorus, and potassium). Overall, global nitrogen demands grew by 14 percent, phosphate demand grew by 13 percent and potash demand grew by 19 percent from 2001 to 2006. China, India, and Brazil are the three largest contributors to the growth in world nutrient demand. As it stands, the U.S. is the largest importer of nitrogen (over 50 percent of its supply) and potash (over 90 percent of its supply) and the largest exporter of phosphate.
In addition, a weak dollar makes fertilizer more expensive for U.S. producers. Over the past few years, the value of the U.S. dollar has plummeted, increasing the costs of the imported goods. Because the U.S. now imports over half its nitrogen and over 90 percent of its potash, with most fertilizer materials priced in U.S. dollars, foreign producers have to raise the price of fertilizer in U.S. dollars to offset the fall in the value of the dollar to maintain the revenue they receive in local currency.
Biofuel Production
The U.S. fertilizer market is also being driven by the demand for biofuels such as ethanol. With crude oil hovering north of $100 per barrel and prices at the pump skyrocketing, biofuels
are considered to be a key alternative source. The annual capacity of the U.S. ethanol sector stood at 5.6 billion gallons in February 2007. Ethanol plants under construction are expected to add another 6.2 billion gallons of capacity. According to the USDA, U.S. ethanol production may reach 11 billion gallons by 2011. As the consumption and demand for ethanol is ramping up, demand for corn is rising accordingly and corn acreage is one of the largest consumers of nitrogen-based fertilizer.
According to a July 2007 article released by the Fertilizer Institute, farmers in the U.S. planted 92.9 million acres of corn, representing a 19% increase from the 78.3 million acres planted during the previous year, putting upward pressure on fertilizer demand and prices. Similar expansions are planned in other countries. Much of this will go toward the production of ethanol2.
Transportation Costs
Fertilizer transportation costs are increasing, whether by ocean freight, rail, or truck, driven by higher energy prices and other costs. According to the Fertilizer Institute, some of the other cost drivers include port congestion, escalating fuel costs, increased security requirements, and competition from other industries. Given that much of the fertilizer used domestically is imported from overseas, the product has likely taken each of the transportation modes in order to reach its destination, adding significant costs to the end consumer of the fertilizer.
Energy Prices
Natural gas is the main raw resource used to produce ammonia, which is the building block for all nitrogen fertilizers. It is estimated that 70-90 percent of the cost of manufacturing ammonia depends upon the price of natural gas. Due to the extreme price increases in natural gas, U.S. ammonia production costs have skyrocketed, rising 172 percent from fiscal year 1999 to fiscal year 2005.
Since 1999, twenty-five ammonia production facilities in the United States have closed permanently due to high natural gas prices, tight cost margins and environmental regulations. From 2000 to 2006, ammonia production declined 18 million tons to
10 million tons, representing a 44 percent decline. The deficit in nitrogen fertilizers during that time was filled with imported fertilizer. New production facilities are being built in China, the Middle East and the Caribbean. This is because these locations have access to substantially lower natural gas prices, and can therefore produce ammonia, ship it to the U.S. and sell it at a lower price than that of domestic producers. As long as U.S. natural gas prices remain at a substantial premium to world prices, the economic incentive to import nitrogen fertilizers and their major feedstock, ammonia, will be strong3.
As a result of the domestic ammonia production cutbacks, the U.S. fertilizer industry, which typically supplied 85 percent of farmers’ domestic nitrogen needs from the U.S. based production during the 1990s, now relies on net nitrogen imports for half of new nitrogen supplies. The U.S. imported approximately 57 percent of its nitrogen last year - compared to 31 percent in the 1999/2000 growing season4. The Caribbean island of Trinidad has an abundant supply of natural gas, and it manufactures anhydrous ammonia more cheaply than the U.S. Trinidad is expected to be this country’s largest supplier of anhydrous for some time to come, while other popular nitrogen fertilizers such as urea are imported from Russia and Eastern Europe.
While the U.S. is a major manufacturer and exporter of phosphates, supplies are becoming tight. If disruptions in the manufacture or distribution of these fertilizers materialize, then the probability of spot market price spikes increases. More than 90 percent of the potash fertilizer used in the U.S. is imported, the bulk of it from Canada but also some from Russia and the Congo. Given recent flooding that affected the production of potash, this also suggests supplies may be tight in 20085.
Organic Fertilizer Growth
Although organic fertilizer products represent only a tiny share
of the $40 billion U.S. fertilizer market, the trend is clear. Consumer demand for all things clean, green, and organic, including foods, hybrid automobiles, and other items, is growing at a rapid clip. Once considered a boutique product, organic fertilizers now find themselves in the unique situation of being less expensive than the petroleum based synthetics, and capable of performing at the same levels. Current pricing puts comparably based synthetics at more than twice the cost when application rates are equal.
Four years ago, Scotts Miracle-Gro (SMG), the world’s largest lawn products company, recognized the opportunity and added organic plant growing products under its Organic Choice brand. According to Keith Baeder, Vice President for marketing at Scotts Miracle-Gro’s growing media group, sales have “basically doubled every year from the start.”6 Scotts Miracle-Gro estimates the total organic lawn and garden market at $400 million, with fertilizers at $60 million7. This strong demand is providing a strong pipeline of business for small organic based companies like Advanced Growing Systems, Inc. (OTCBB:AGWS), Converted Organics, Inc. (NASDAQ:COIN), Griffin Land and Nurseries, Inc. (NASDAQ:GRIF), and Origin Agritech (NASDAQ:SEED).
Most organic manufacturers operate regionally, resulting in a fragmented market, with a diverse customer base and very few large national players, with Scotts and Perdue Farms Inc. being the exception to the rule. Buyers of organic fertilizer include grocers such as Whole Foods Market, Inc., golf courses and parks, small farms and home gardeners.
Organic fertilizer companies stress that their products offer a slow, consistent release of nutrients, which foster microbial life and is better for the soil. These companies also stress that the fertilizers’ lower levels of nitrogen reduce the risk of water contamination. Although there is still a fair amount of debate from critics over the benefits of organic fertilizer versus its synthetic peers, it appears that the demand for organic fertilizer products will remain strong.
In the United States, it is estimated that there are 30 million acres of lawn on which children and household pets play. The growing demand for organic fertilizer is driven largely by the harmful side effects from the chemicals in the synthetic fertilizers, pesticides, and herbicides. According to experts, a healthy lawn created in good soil and topped with a thin layer of compost, manure, or other organic material forestalls the common weeds, bugs, and diseases. When problems do arise in the lawn, natural remedies exist8. If consumers are given the option of keeping their lawns almost completely weedless and lush without the use of toxic chemicals, an increasing number will chose to do so. Now that organic fertilizer alternatives are cheaper than synthetics, we believe that the opportunities for organic fertilizer producers are virtually limitless.
Although consumers of fertilizer are feeling the effect of rising prices, the fertilizer companies are beneficiaries of this strong market. The following are four examples of 52-week gains as of March 12, 2008:
Converted Organics (NASDAQ:COIN)
Potash Corporation (NYSE:POT)
Mosiac Company (NYSE:MOS)
CF Industries (NYSE:CF)
Those, along with Advanced Growing Systems, Agrium Chemicals, Origin Agritech, Scotts Miracle Gro Company, Terra Industries, Terra Nitrogen and others, make seeds and fertilizers used worldwide. According to U.S. News and World Report, the Market Vectors Agribusiness exchange-traded fund, which tracks the DAXglobal Agribusiness Index and includes machinery, fertilizer, livestock, and seed shares, is up more than 27 percent since its September launch.
Converted Organics (COIN) is a player in the embryonic organic fertilizer market, and it has seen its stock price soar from $2.25 a year ago to $12.20 as of March 10th, 2008. Advanced Growing Systems (AGWS), another young company in the organic fertilizer market, is quickly gaining traction and visibility with fertilizer sales growth exceeding 100% quarter-over-quarter.
Paul Silver
Managing Director of Research
Wall Street Resources, Inc.
psilver@wallstreetresources.net
Advanced Growing Systems (OTCBB:AGWS)
For more information on Advanced Growing Systems, Inc. (OTCBB:AGWS) Go to the following link:
http://www.wallstreetresources.net/advancedgrowing.asp
Chart Source: Big Charts.com www.bigcharts.com

http://www.wallstreetresources.net/pdf/nl/current_Newsletter.pdf



Public Reply Private Reply New Post
Keep Last Read
Replies (1) Keep Last Read Next 10 Report Keyboard Shortcuts
Replies (1) Next 10 Prev Next

Join the InvestorsHub Community

Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.

Sign Up