Yongye International's (Nasdaq: YONG) stock price performance in 2011 might have been a bummer, but the stock still features in my top three fertilizer picks. Let's see what 2012 could hold for Yongye.

A must-watch move
Yongye has impressed me with its smart strategy of putting in money where it pinches most -- sourcing raw materials. Instead of buying humic acid from intermediaries, the company is now using lignite coal from its own Wuchuan facility to extract nutrients. In fact, Yongye is already enjoying cost advantages since this facility became operational last year.

What Fools need to watch out for is the latest development on this front. During its last quarter, Yongye received government approval for a mineral resource exploration permit for its designated project site in Wuchuan. The company is developing this site, which is very close to its primary production facility, as a primary source of raw material for its nutrients. This approval is a critical step toward the target, as Yongye can now apply for final production development approval for the site. Investors should keep track of these developments.

In Yongye's favor
The other thing that should keep propelling Yongye is the agriculture boom. The fertilizer industry has never had it so good, with farmers across the globe racing to grow more to make the most of high crop prices. This, in turn, has fueled the demand for fertilizers, taking their prices sky-high this year and making it a boom year for most fertilizer companies.

Think of Terra Nitrogen (NYSE: TNH) and CVR Partners (NYSE: UAN), who reported outstanding revenue growth of nearly 50% and 66.4% in their respective third quarters. Similarly, PotashCorp's (NYSE: POT) third-quarter revenue grew an astounding 47% from the year-ago quarter to $2.3 billion as emerging markets drove demand.

In such a situation, how could Yongye stay behind in the race? Its third-quarter revenue climbed a staggering 95.9% from the year-ago quarter to $140.6 million. What's worth noting is how aggressive marketing efforts (I'll talk about it in detail a little later) played a big role in boosting the top line.

What's more, Yongye has the distinctive advantage of having a base in a nation where agriculture is gaining significance. Here's why this "China factor" should continue to work in Yongye's favor next year.

The big boon
China's burgeoning population and higher spending power has fueled demand for food, lifting agricultural production. And China's recent purchase of 900,000 metric tons of American corn is the best evidence of this. Let's see what China does in 2012!

No wonder China is attracting fertilizer companies from across the board. From chemical king PotashCorp to seed giant Monsanto, most companies are not just bullish on China, but are also trying to get a bigger piece of the Chinese market. Even chemical biggie Dow Chemical is expanding its sales network in China.

Interestingly, the China growth factor also signals bigger challenges for Yongye in terms of intensifying competition as firms venture deeper into the country. The good part is that Yongye is already busy trying to grab a bigger market share through aggressive marketing. And these efforts are likely to play a vital role in boosting Yongye's revenue in 2012.

A wise strategy
Yongye has intensified its focus on tapping new provincial markets in China recently, a strategy that seems to be paying off well. Almost 26% and 21% of Yongye's total sales in its second and third quarter, respectively, came from these new markets.

How Yongye now plays the game will be critical, as rival China Green Agriculture (NYSE: CGA) is also busy aggressively promoting its products and entering new markets. Note that Yongye is also in talks with a celebrity to endorse its products. If this materializes, Yongye could hit the jackpot as far as promoting products are concerned. Keep watching, Fools.

The unfortunate challenge
Poor Yongye! In spite of a great business line, growth plans, and performance, it faces tough luck when it comes to investors' confidence. Because funnily, what acts as a boon for it has also become the cause of terrible pain. Yongye's shares were beaten black-and-blue in 2011 by short-sellers who gave Chinese stocks a thumbs-down after all the accounting scandals that rocked the Street.

We cannot really dispel the fear from Mr. Market's mind, but the company's solid performance is telling a different story. The fact that Morgan Stanley is investing in the company -- and that one of the "Big Four" auditors is involved with Yongye's auditing -- tells us that Yongye might not be one of those fraudulent Chinese companies.

I think if Yongye continues to perform well in 2012 and proves allegations (if any) wrong, it could be the best thing to happen to the company. Let's hope Yongye can prove its critics wrong.

The Foolish bottom line
Yongye is growing fast, and I think it deserves a watchful eye. Keep yourself updated on how 2012 unfurls for Yongye by adding it to your stock Watchlist -- the free, personalized stock-tracking service brought to you by The Motley Fool.