Please ensure Javascript is enabled for purposes of website accessibility

Should We Be Concerned About Peak Phosphorus?

By Jay Yao – Feb 23, 2014 at 1:26PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Should we be concerned about running out of one of the essential ingredients in fertilizers?

On the surface, peak phosphorus seems very disconcerting. 

Along with nitrogen and potassium, phosphorus is an essential ingredient for fertilizers. Fertilizers have played a key part in the Green Revolution, which has helped feed an extra 4.2 billion people since 1950. 

Unlike nitrogen, which can be synthesized from air by the Haber process, potassium and phosphorus cannot be synthesized or substituted. 

The scarcity of potash, which is a source of soluble potassium, is not as big of a concern as the scarcity of phosphorus. According to the U.S. Geological survey, the world has at least 200 years of reserves of potash. 

Some experts predict that the high-grade reserves of phosphorus will be depleted anywhere from 50 to 100 years and peak phosphorus could occur as soon as 2030. Despite the dour projections, there are a few reasons not to be overly concerned.

We can change our diet
First, we can change our diets. Eating less meat and more vegetables would help. Diets heavy with meat and dairy typically require up to three times as much phosphorus as a vegetarian diet. 

We can improve the food chain
Second, we can improve our food chain. In developed countries, as much as 50% of food production is lost from farm to fork. As it stands today, the world doesn't really have a food production problem, it has a food distribution problem. In the future, if we improve food distribution, we could still feed everyone while maintaining our current levels of food production.

We can recycle
Third, we can extract phosphorus from the things that we throw away today. We can extract phosphorus from manure, crop residues, food waste, and human excreta. We can also get phosphorus from algae, seaweed, and ash. 

Those extraction methods are currently uneconomical now, but could reasonably be expected to become economical in the future. 

The bottom line
Right now, weak macro outlooks in developing nations and weak potash prices are holding back demand for fertilizer companies such as Agrium (NYSE: AGU), PotashCorp (POT), and Mosaic Co (MOS 1.42%)

On a long-term time horizon, however, it makes a lot of sense to invest in fertilizer companies. 

The world's population is projected to increase from 7 billion today to 9 billion people by 2050. The Food and Agricultural Organization of the United Nations predicts that in order to feed those 9 billion people, food production will need to increase by 70% to 100%. 

Fertilizers and fertilizer companies will make up a big part of the equation.

As for peak phosphorus, I think the problem is too far away for the market to be concerned. While some countries are no doubt building inventories in preparation for the event, most market participants look at 10 year timelines or less. 

If and when peak phosphorus does occur, and because fertilizer is such an essential ingredient in food production, fertilizer companies will likely have the pricing power to pass on the added costs to the consumer. Because there are ways to compensate for phosphorus shortages, we will still be able to produce enough food -- the food will just be more expensive.
 

Jay Yao has no position in any stocks mentioned. The Motley Fool owns shares of PotashCorp. 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.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Potash Corporation of Saskatchewan Inc. Stock Quote
Potash Corporation of Saskatchewan Inc.
POT
Mosaic Stock Quote
Mosaic
MOS
$51.30 (1.42%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.