Human life depends on agriculture, and there is no reason why it shouldn't be an important part of your portfolio. A good, conservative dividend needs to be supported by diversified and steady income. Many companies in the agricultural industry are dependent on a limited number of volatile markets, but Agrium (NYSE:AGU) bucks the trend. Its dividend yield is lower than PotashCorp's (NYSE:POT), but Agrium offers steady income growth with its retail operations and wholesale nitrogen business. 

The potash market

Potassium Chloride (Muriate of Potash) Spot Price Chart

Potassium Chloride (Muriate of Potash) Spot Price data by YCharts

It is clear from the above chart that Agrium's gross profit is not too dependent on volatile potash prices. As seen in PotashCorp's and Mosaic's (NYSE:MOS) rapidly falling gross profits, not all fertilizer companies are the same. By looking at potash as a percentage of gross profit or gross margin, it is even clearer which companies are exposed to potash volatility. In 2012 potash made up just 18% of Agrium's wholesale gross profit while it made up 57% of PotashCorp's gross margin and 53% of Mosaic's gross margin. 

2014 is shaping up to be a tough year for PotashCorp and Mosaic. The recent shakeup in potash's market governance pushed the 2014 price floor down around $300 per tonne, a substantial decline from the $400-plus per tonne that was seen in 2013.

PotashCorp and Mosaic are trying to deal with potash's instability
PotashCorp has decided that cutting costs is the best way to deal with the new potash market. It recently decided to remove 1,045 positions and shut down a number of facilities. Mosaic is looking for growth in other areas. Its acquisition of CF Industries' phosphate business for $1.4 billion is currently making its way through the U.S. legal system.

Even with these mitigation techniques, PotashCorp and Mosaic are facing little or no growth in 2014. They rely on potash for a significant portion of their gross margin, and the recent cartel shakeup is having a lasting impact. With PotashCorp expected to post earnings per share of $2.12 in 2013 and $2.04 in 2014, it would be very difficult to justify any significant dividend increase. Mosaic is a in a similar situation, with expected EPS of $2.95 in 2013 and $2.96 in 2014. For conservative investors it is probably best to take a wait-and-see approach with these companies.

Look at dividend growth potential
Dividend growth is a powerful tool, as it increases the effective yield on your original investment. Agrium offers an attractive dividend because of its growing operations. Between 2005 and 2012 it grew its retail operations from 16% to 32% of its annual earnings before interest, taxes, depreciation, and amortization. To help reach the goal of growing its retail EBITDA from $951 million in 2012 to $1.3 billion in 2015, it recently acquired 210 farm centers from Viterra.

On the wholesale side, it also expects to see growth thanks to expanding demand in the nitrogen, phosphorous, and potash markets. Agrium's nitrogen operations provided 64% of its 2012 wholesale gross profit, and there is a relativity low chance that the nitrogen market will see a sudden price fall.

The nitrogen market is not as concentrated as the phosphorous or potash markets, leaving little chance of a sudden major change in market governance. Thanks to continued improvements in multipad drilling and pressure to decrease flaring, North America's natural gas supply growth should help keep nitrogen costs from increasing too rapidly.

Final thoughts
The agriculture market provides a great opportunity for you to invest in the companies that help put food on your table. While instability in the potash market has taken a big hit on PotashCorp and Mosaic, Agrium is more dependent on its nitrogen operations and growing retail business. Its 3.2% yield is not massive, but if you are willing to take a five-year position, then future growth should push its dividend up even higher.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool owns shares of 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.