Fertilizer has a reputation for being a dirty business, but behind the soiled façade is a high-tech industry with a history of scientific advances and innovation that spreads beyond the farm. CF Industries (NYSE:CF), Potash Corp (NYSE:POT) and Agrium (NYSE:AGU) continue the tradition of advanced production methods that maximize both technical and financial efficiency.
The not-so-basic technology
The basic chemistry that goes into ammonia synthesis is fairly straightforward, but the details necessary to optimize the process are complex. The core idea behind the synthesis of ammonia is to react hydrogen gas and otherwise non-reactive nitrogen together via what's called the Haber process to produce ammonia. The ammonia produced industrially by the Haber process amounted to an enormous 198 million tons in 2012, with the vast majority of the ammonia product going toward the production of fertilizer.
High-tech room for improvement
On its most basic level, nitrogen production for fertilizer can be explained at the high school chemistry level. The continuing advances in the process since its inception in the early twentieth century, developing uses of the ammonia products, and the industrial-scale engineering modifications needed to optimize the process are, on the other hand, complex subjects often reserved for dissertations and technology conventions.
That said, to some extent investors should invest in what they know, and if somebody is investing in fertilizers it may be worth knowing the complexities of their synthesis.
Compared to many biological processes, the Haber process is simple. It involves only a few fundamental steps, the details of which were elucidated in work worthy of the 2007 Nobel Prize in Chemistry. The high-temperature (~700°F), high-pressure (~200x greater than atmospheric pressure) process requires a solid surface onto which the reacting hydrogen and nitrogen can stick, break apart, and then react together to form ammonia before unsticking from the 'catalyst' surface. Determining and refining the optimal reaction conditions and the best catalysts for the process are continuing fields of both industrial and academic study.
Over 80% of ammonia produced by the Haber process is used in fertilizers, with the remaining percentage used as building blocks in products ranging from cleaners and plastics to explosives and pharmaceuticals. While representing only a comparatively small part of the overall ammonia synthesized, the portion of ammonia used for non-fertilizer purposes still amounts to over 30 million tons annually.
Regardless of the end product, the production of the ammonia remains unchanged. In the United States, industrial-scale ammonia production is dominated by a handful of companies due to the nature of the industrial process that favors massive production facilities where product sourcing (primarily natural gas) can be concentrated. Consequently, nitrogen has become a regionalized business in that production facilities are located proximal to one another near more readily available natural gas to minimize the transport costs of the primary and most expensive component in the process.
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As I sit in my home in Wisconsin dairy country watching out my window as my neighbor flings cow excrement from a manure spreader, it's a bit difficult to think of fertilizer as a glamorous industry filled with technology. However, out of its humble beginnings, fertilizer has advanced to become a mass-synthesized, highly tailored product with production yields that amaze chemical engineers. As world food demand rises and the demand for nitrogen fertilizers grows, technological advances in fertilizer production will enable the country's largest ammonia producers to expand as well.
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Fool contributor Shamus Funk has no position in any stocks mentioned. The Motley Fool owns shares of CF Industries Holdings and PotashCorp. 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.