Agricultural Chemicals: This Ain't Just Fertilizer
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A lot of people do not have enough respect for the agricultural chemical industry. While it may not pull the same sexy stunts as the latest tech startup or be as instantly recognizable as your favorite retail giant, this is the industry that keeps us all alive. But that alone isn't enough to earn any special respect in my book. I expect any applicants to the Hodge-folio to pull their weight and then some. I've become far happier to have cash over the past few years.
Agrium (NYSE: AGU) is one of the most major suppliers of Potash and other components of fertilizer in North America. What I like about Agrium's role in the agricultural chemical industry is that it is a part owner of the Canadian distribution company Canpotex, and that it serves a large role in both the US and Canada. While these two countries are neighbors, their economies are different enough to provide a very stable economic base. When the US does well, it does amazingly, while Canada is a solid performer through just about everything. Canada was hit with a lot less issues during the recent recession, despite how toasted the US got. What I don't like about Agrium is that the EPA keeps citing it for violations of the Clean Air Act. A few hundred grand here and there may not sound like much for the bottom line, but it does add up. On top of the initial costs of environmental non-compliance, there's also the potential for a public relations backlash that could hurt the shareholders a lot.
At almost the other end of the environmental spectrum is CF Industries Holdings (NYSE: CF), which has Terra Environmental Technologies as one of its subsidiaries. I really like the potential of Terra to reduce carbon emissions in heavy transportation vehicles like big rigs, which is going to become a major issue as more municipalities follow the Governator's lead on reducing the carbon they release. In addition to Terra, CF also has a lot of other subsidiary businesses providing all kinds of fertilizers. Between the moat that Terra provides and heavy diversification, I like CF Industries.
CVR Partners (NYSE: UAN) is an interesting nitrogen company. Producing, distributing and marketing its nitrogen products and based in Texas, CVR has a robust economy to fall back on, ample natural resources in its back yard and close proximity to the midwest (where growing stuff from the ground is almost all we do). If there's one thing corn needs, it's plenty of nitrogen, so CVR has plenty of potential business. However, I do not like that CVR is getting into the mergers and acquisitions craze and looking to purchase "ancillary assets." I haven't gotten my hands on their latest annual report yet, and I'm not even sure if they're past the "looking" phase, but it seems like they have money burning a hole in their pocket. That's pretty dangerous for shareholders because generally, only a fool and his money are so soon parted.
Potash Corp of Saskatchewan (NYSE: POT) is the world's largest producer of potash with 20% market share, which is pretty important for food crops. PotashCorp is also the third largest producer of both nitrogen and phosphate. It even owns a portion of Canpotex along with Agrium and others. While size is definitely a moat and there's definitely room for growth here despite the size, I do worry about PotashCorp. See, I have this thing with companies that support occupations that the UN doesn't agree with, and PotashCorp supports Morocco's occupation of the Western Sahara. If the UN steps in, PotashCorp may need to find a new source of phosphate rock. That will definitely hurt shareholders.
The agrochem industry is a surprisingly exciting place considering its subject matter is primarily chemicals that most people have no direct interaction with. There's international intrigue, threats (and solutions) on a global environmental scale and plenty of room for cooperative competition.
pongun has no positions in the stocks mentioned above. The Motley Fool owns shares of CF Industries Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.