The Real Expert

The Agriculture Bull Keeps Getting Stronger

Chem Eng fair enough, I too learned how to make fertilizer in freshman chemistry. But I am sure you realize there are many ways to make fertilizer. As far as the nitrogen required, this usually comes from natural gas. Any way you look at it, making fertilizer consumers an enormous amount of energy. Whether one uses oil or natural gas does not matter. What matters is that rising oil prices are leading to soaring costs of fertilizer.

The Agriculture Bull Keeps Getting Stronger

Dhinesh how can you miss the oil link? It's common knowledge at this point. The fact is that the population growth does not offer any problems to food demand, as the growth remains on the curve and thus has been accounted for by the ag industry. The only factor that is remotely relevant is the increased incomes in Asia and (let's not forget) Latin America. While one might tend to think that higher wages would cause a disequlibrium in the supply-demand for food, forcing prices higher, the fact is that higher prices would push down any effects of emerging nations switching to more dairy and meat. As for biofuels, they have added to the problem but not as much as one might imagine. The source of the food problem is with record oil prices.

Oil is the prinicple component of fertilizers and needed for most all farm equipment, as well as for transport of products to retailers.

The Agriculture Bull Keeps Getting Stronger

I would recommend you people stay clear of fertilizer companies. Unless you got in a year ago, there is too much downside risk. While I believe they have considerable upside, the problem is that unless you get out in time you will be stuck holding these companies for many years at a loss. Think about it - they are fertilizer companies - nothing special. The economics are being driven mainly by oil. No other factor comes close.