More Than Just an Agriculture Stock

It's one thing to arrive at a party after the festivities are in full swing; it's another thing entirely to arrive just as guests start trickling out. The same can be said for stocks, where Fools do not want to be that guest who never knows when to go home.

I freely concede I missed a mammoth opportunity with the recent surge in agriculture stocks. More painfully still, I owned shares of Potash Corp. of Saskatchewan (NYSE: POT  ) a couple of years ago and sold for what I thought was a tidy 20% gain. Woe is me! After the recent sell-off in agriculture stocks, though, the time feels right to at least take another look.

Potash Corp. today is trading at around 8% below its record high of $241, while fellow fertilizer giant Agrium (NYSE: AGU  ) is off by around 11%. Given the speed of their respective price appreciations, I agree with my colleague that such names remain a little "frothy". What about Sociedad Quimica y Minera (NYSE: SQM  ) ? This Chilean fertilizer producer only really started seeing accelerated share growth in 2008, and yet has fallen 27% from its June high to trade around $42 today.

SQM is a major global producer of specialty plant nutrition for every stage of the crop cycle, but also offers diversification from pure agriculture exposure by producing lithium and iodine. SQM is a serious player in lithium production, supplying the very busy steel and aluminum industries. Lithium is also a key element in the batteries used in hybrid cars like the Toyota (NYSE: TM  ) Prius. SQM also boasts the largest iodine production capacity in the world. Iodine is used in medical applications, LCD displays, etc. While competitor FMC Corp. (NYSE: FMC  ) also offers both fertilizers and lithium products, SQM is the only player I've seen with this particular trio of business segments.

With net earnings in the first quarter of 2008 that bested the previous year's quarter by 50%, SQM looks intriguing to me at this stage. Every Fool has their own inner comfort level when it comes to investing in stocks with major momentum. While Potash Corp. and Agrium may very well reach new highs again soon, the more precipitous decline in shares of Sociedad Quimica y Minera, combined with the unusual trifecta of products offered, makes SQM a standout in this Fool's eyes.

Further Foolishness:

The "Agricultural Chemicals" tag within Motley Fool CAPS lists 24 companies. Join the free CAPS community and see what other investors are saying about this hot sector.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can be found acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns no shares in the companies mentioned. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (13)

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  • Report this Comment On July 09, 2008, at 4:55 PM, drewberry1 wrote:

    Another great reason to own Potash Corp. is that they own 32% of SQM! PS Get a hybrid!

  • Report this Comment On July 09, 2008, at 5:07 PM, XMFSinchiruna wrote:

    Wow... I did not know that! I'm glad you posted it... another example of what makes this community so great... collective intelligence. :)

  • Report this Comment On July 10, 2008, at 8:11 AM, DoubleCorona wrote:

    Mr. Barker:

    If you believe that the run is over for the fertilizers, than you have not been doing your research, my foolish friend.

    Nothing lasts forever, however, some cruises can last 7 days, some 21 days.

    We're at day 5 of a 21 day cruise on the ferts - All of the foolish analysts are raising targets, and the company is raising prices.

    Put on your boat shoes and join the party.

  • Report this Comment On July 10, 2008, at 11:46 AM, XMFSinchiruna wrote:


    I don't believe I said I thought the run was over. And I certainly don't think it is, or else I would not be highlighting SQM.

    There are several monster bull markets occurring in commodities, and I'll be just fine with my gold and silver, thank you. :)

    Of course... selling POT back when I did was one of the worst sales I've made. Maybe it's just me... but no matter how great the outlook is, it's very hard to buy shares of something at $220 when you previously paid $35. :)

  • Report this Comment On September 18, 2008, at 8:46 PM, gamma65 wrote:

    Consider moving even further upstream in agriculture than fertlizer producers - direct farmland investments. The equity and bond markets have benefited from a long period of low inflation, but ongoing and massive central bank liquidity injections point to a far less benign environment of elevated inflation ahead. Research by Agcapita Farmland Investment Partnership (Calgary, Canada based agriculture private equity firm) shows investors must now consider rotating into asset classes with different characteristics.

    During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland. Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms), cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return) and the S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)

    I believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:

     Corn is US$ 5/bushel currently compared to US$16/bushel in 1974,

     Wheat is US$ 7/bushel currently compared to US$27/bushel in 1974

     Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981

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