Phosphate: As Critical as Rare Earths

Includes: AGU, CF, MOS, POT
by: Mobile Guru

I was playing catch up over the weekend on some reading when I came across an intriguing article by Jack Lifton on the Phosphate market, "Feeding the World’s Hunger for Phosphorus."
Recall that Mr. Lifton played a leading role early on in educating the public about critical supply constraints in the rare earth metals industry. We all know what happened once that story became better understood…the rare earth stocks as a group increased by many multiples over the course of last year. It was one of the hottest market sectors of 2010.

Now, Mr. Lifton is on to another compelling situation. Most of us already know that the United States is an agricultural powerhouse, ”the breadbasket to the world.” The United States is the top producer of corn and soybeans and a top three producer of wheat. Most of us know too that in order to grow these key crops, you need fertilizer. Now it gets interesting. Fertilizer consists of three critical ingredients; nitrogen, potassium and phosphorous. You MUST have all three of these compounds or else you do NOT have fertilizer. Without each of these, the crop will suffer and not produce anywhere near its optimal amount.

Potassium and Nitrogen production in North America is plentiful, with large production facilities scattered throughout the US and Canada. But Jack’s article points out that a significant percentage of the World’s phosphorus supply comes from politically unstable parts of the World, and that North America is currently in supply deficit of this critical agricultural input.

While ruminating over this, I reached the “ah ha” moment where the light bulb went off in my investment-minded brain:

  • Long term demand for fertilizer will increase due to rapidly rising farm incomes this year (up 20%)
  • World Population continues to grow (we need to eat) requiring more fertilizer
  • The world as a whole is moving up the food chain toward higher protein nutrients (meat). More people and livestock need to be fed
  • Food shortages and riots are becoming more commonplace. This puts additional pressure on world governments to increase food production
  • Experts agree that fertilizer is still under applied on a global basis
  • Recall that last summer, teams lined up to try to buy the giant global fertilizer company Potash Corp (NYSE:POT) hmmm…
  • Other companies in the fertilizer sector seem to be doing well such as Mosaic (NYSE:MOS), Agrium (NYSE:AGU), CF Industries (NYSE:CF), and Potash Corp. (POT). Each of these stocks is trading near the upper end of its 52 week price ranges.

I believe that once again, Jack Lifton remains ahead of the pack by identifying yet another potential supply problem. It is no wonder or surprise that Jack is considered to be a world expert and deep thinker on issues affecting critical metals, materials and minerals.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.