COMMODITIES : FERTILE GROUND FOR INVESTORS / THE FINANCIAL TIMES ( RECOMMENDED READING )

Note from the editor


Fertile ground for investors

Investing in commodities is not nearly as cool as seeking exposure to Google and Facebook.

But even by the standards the asset class of thermal coal, lead and barley, the fertiliser urea would seem to be one of its least glamorous members.


Yet urea, along with its fellows potash and phosphate, is hot.


Demand is rising fast, particularly in the US, and so, therefore, are prices. And shares in fertiliser producers are effervescent.


The latest deal in the sector came on Tuesday as Cargill, the world’s largest agricultural commodities producer , span off its 64 per cent stake in fertiliser producer the Mosaic Company in a deal worth just over $24bn.


Behind the sparkling mood in the sector is the rally in agricultural prices and, in particular, in corn. The plant needs significantly more fertiliser than other crops, including wheat, soyabean and cotton. With corn prices at a two-year high of $6.5 a bushel – nearing an all-time high set in mid 2008 – analysts and traders expect that the hungry crop will take the bulk of the expected increase in planting this spring. So demand for fertiliser will jump compared with lacklustre consumption of 2009-10.

Agronomists say that corn needs more fertilisers, consuming on average in the US about 233 pounds of nutrients per acre, equating to 132 lb of urea or another nitrogen fertilser, 54 lb of potash and 47 lb of phosphate.


Cotton is the second most intensive crop, with fertiliser requirements of about 150 lb per acre, followed by spring and winter wheat – 100 lb and 78 lb per acre respectively –. At the bottom sits soyabean, which only needs 34 lb per acre.


The extra demand is filtering into the market. Benchmark urea prices have spiked 36.4 per cent over the last year.

Meanwhile, the cost of anhydrous ammonia, another nitrogen fertiliser widely used by corn growers, has risen by nearly 100 per cent. Besides, potash prices in the US corn belt have risen 28.9 per cent over the last year, while the cost of MAP, a form of phosphate, is up 43.3 per cent.


As a result fertiliser producers are doing quite well and many expect to see share prices rising further as corn prices need to move higher to attract more acres.


The shares of Yara of Norway, the world’s largest listed fertiliser company, are up 33.8 per cent over the last 12 months. And the shares of Potash Corporation of Saskatchewan, the target of BHP Billiton’s failed $39bn hostile takeover attempt, are up 44 per cent over the same period, well above the miner’s last offer. Agrium is up 43 per cent and others and CF Industries is up a hefty 56.6 per cent. The shares of UralKali, the Moscow-listed fertiliser producer which recently merger with local rival Silvinit in a $24bn deal, are up nearly 60 per cent since January 2010.


So its true fertilisers are not nearly as cool as Facebook - urea and its peers are really hot.