Miners That Feed The World

"The 7 billion livestock animals in the United States consume five times as much grain as is consumed directly by the entire American population," explains David Pimentel of Cornell University. That's huge, particularly since emerging market diets are increasingly looking like diets in the United States. Fertilizer miners Potash Corp. of Saskatchewan  (NYSE: POT  ) , Agrium (NYSE: AGU  ) , and Mosaic (NYSE: MOS  ) are set to benefit as crop production tries to keep up with demographically driven demand increases.

More crops
Potash Corp. of Saskatchewan, which mines its namesake along with phosphates and nitrogen, notes that rice production increases 30% with the addition of fertilizer; wheat, soybeans, and corn between 50% and 60%. Those are big numbers and show why farmers use fertilizer—wouldn't you like to get 50% more work done in the same amount of time?

Recently, however, there have been issues at one of the two large, international potash marketing organizations that have drastically affected the outlook for the fertilizer. That's led to share price declines, including an around 20% year-to-date drop in Potash Corp. However, the CEO of Potash points out that "potash is not like shoes. If you cut the price in half, people don't buy two pairs." Essentially, farmers need the amount they need. So, longer-term, price is less of a concern than demand. And demand is being driven by the industrialization taking place in emerging markets, which is changing eating habits and reducing the number of farmers.

Seventy percent more!
Agrium, for example, projects that the world will need 70% more food production by 2050, largely because of emerging markets. The company, however, has a much broader reach than Potash, selling everything from seeds to fertilizers and pesticides. That diversification should both help protect the company from weakness in the fertilizer market (its shares are down just 15% year to date), but also provide growth potential as the company looks to cross sell seeds to its large fertilizer customer base.

Mosaic is another big player in the space, focusing, like Potash Corp, on fertilizers. The company believes the share price drops associated with the price-fixing concerns are overdone, including an about 20% drop in its own shares.

However, the company highlighted near-term headwinds and dropped its full-year 2013 sales estimates in September. It's worth noting that demand appeared to be more of an issue than price in that decision since the high-end of the company's product price ranges fell, but the low end didn't.

Also in on the act
The above trio is focused on agriculture, but there are other players in the fertilizer market. For example Vale (NYSE: VALE  ) , which mines iron ore and copper among other things, gets 7% of revenues from fertilizers. Moreover, operating out of South America, it has a direct line to Brazil. Although fertilizers won't drive the company's business, they should provide a nice boost as Brazil's economy continues to develop.

BHP Billiton (NYSE: BHP  ) is another diversified miner looking to enter the market, spending billions to complete a big potash project in Canada. The mine isn't operational yet, but that's actually a benefit as it allows world demand to pick up, helping to push the industry past its near-term challenges. Look for potash to be a notable contributor to BHP's long-term prospects once the mine opens.

Demographics is destiny
There's a saying that demographics is destiny. That may or may not be true, but more food is definitely needed to feed more mouths. And emerging market populations are still growing. Add in changing diets and demographics suggest fertilizers will become increasingly important. Specialists Potash, Agrium, and Mosaic are direct plays on the trend. Vale and BHP also offer some exposure, but within a more diversified package.

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