Terra Nitrogen (NYSE: TNH) did extremely well in 2011, and it even features in my top three fertilizer picks I recently wrote about. As the new year begins, let's see what 2012 holds for Terra?

Good days should stay
 The prices of most nutrients shot through the roof last year. No wonder Terra had a rocking year! In the first nine months of 2011, selling prices for ammonia and UAN (key nutrients Terra deals in) shot up 32% and 48%, respectively, from the same period of 2010. Terra's nine-month sales thus surged 42% to $597.9 million.

But if you are wary that it was only prices that drove Terra's revenue up this year, don't be. Terra also sold more nutrients in its last quarter, and these higher volumes were a result of higher production in the quarter. The deadly combination of high prices and volumes drove Terra's revenue up.

After witnessing how the fertilizer industry gained significance this year, I won't be surprised if 2012 turns out to be an equally good year for Terra. Farmers across the world are going over the edge to grow more and make the most of rising crop prices and demand for food (fueled by burgeoning population and higher spending power especially from the emerging markets).

While every fertilizer company stands to gain in such situations, Terra has a slight edge over PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS) because nitrogen -- Terra's focus nutrient -- is less expensive to produce than chemicals such as phosphate and potash these peers focus on.

The fertilizer cartel (which these three companies are a part of) gives us clues about the rising global fertilizer demand. Fast-growing countries such as India signed big import contracts with these companies during 2011, raising hopes of more such deals in the future, which should work well in favor of nutrient makers such as Terra.

The corn impact
 Terra's business tends to depend a lot on external factors, particularly crop plantations and prices. Things on this front look upbeat for 2012.

Terra is actually expecting record plantations next year. This is very much in line with what CF Industries (NYSE: CF), which owns around 75% of Terra's shares, is predicting. CF has projected more than 93 million acres of corn plantations next spring. Other nitrogen players such as CVR Partners (NYSE: UAN) are also expanding their capacities to ensure they do not miss out on the agricultural boom opportunity.

The reason why corn is being discussed here is that corn is an integral factor affecting Terra's sales. Because corn requires a lot of nutrients, higher corn plantations translate into higher demand for fertilizers.

The most interesting and optimistic development on this front was China's recent biggest purchase of 900,000 metric tons of American corn. This was a surprise, especially since it came from a country that exported corn till a couple years ago. It definitely shows how demand for corn is rising, which is nothing but good news for Terra going ahead.

I don't see a challenge here
Like CF and CVR, Terra's business largely depends on the fate of commodity crops such as corn for reasons mentioned above. While these companies are predicting high plantations next year, there has been a lot of talk in the recent months over higher supply of corn denting prices and demand. Most fertilizer stocks, including Terra, felt the pinch when the USDA recently reported higher corn stockpiles, giving rise to fears of lower-than-expected corn plantations.

I, however, feel investors' fear is uncalled for. True, how Terra's business fares depends a lot on corn, but even if supply rises, it might not spell a death knell for corn prices or demand. Corn is a food staple and we aren't going to stop eating, are we? I don't think corn should cause Terra any worry next year.

Will Terra maintain dividends?
 Terra deserves the winner's tag when it comes to dividends among fertilizer players, thanks to its master limited partnership structure. The company maintained extremely high dividend yields throughout 2011 (it currently has a yield of 10.2%). The question is, what about 2012?

Though Terra's structure will ensure it continues to pay dividends, 2012 could be lukewarm in terms of payout. Terra expects huge capital expenditures between $50 million and $80 million in 2012 related to maintenance upgrades of its manufacturing facility. Since the company did not schedule any turnaround maintenance activities in 2011, I expect 2012 to see more of these. Higher capital expenditure will mean lower cash in the hands of the company to distribute to shareholders (read: lower dividends).

The Foolish bottom line
 Terra's good run looks well set to continue into the next year. I'm sure you would like to keep yourself updated on how 2012 unfurls for Terra. Simply add Terra to your stock watchlist. It's a free, personalized stock-tracking service brought to you by The Motley Fool.

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