Replies to post #5716 on The Rising Influence of Rising Affluence

[DewDiligence]

I haven’t followed the fertilizer companies closely enough to make a recommendation on any of those names.

[DewDiligence]

Barron’s is bullish on MOS (FWIW):

http://online.barrons.com/article/SB50001424053111904757804578032031302243460.html

[DewDiligence]

What's your opinion on farm equipment vs fertilizer in agriculture space?

Since I responded to your question six months ago, I’ve thought some more about it. My current view is that fertilizer companies, by and large, are not premiere beneficiaries of The Global Demographic Tailwind despite the fact that the world has to produce more and more food to feed a larger and more affluent global population.

Why the seeming paradox? Because fertilizer is already in heavy use on a large proportion of crop acreage and crop yield cannot readily be increased by simply adding more. To the contrary, one of the aims of ag-biotech companies is to allow crops to produce the same yield with less fertilizer. (If you check the pipelines of such companies as MON, DD, and SYT, you will find several such projects in development.)

Moreover, the number of worldwide acres devoted to farming is not expected to increase much, if at all, so there won’t be a material amount of incremental demand for fertilizer from the volume of crop acreage.

The valuations of some fertilizer companies (e.g. CF) do appear cheap on a P/E basis. However, I’m not biting because I don’t see the same kind of long-term tailwind as there is with such commodities as oil, iron ore, and timber, where the demand is almost guaranteed to receive a boost from increasing global population and affluence.