If you’ve invested in agricultural fertilizer companies, you’ve failed to beat the S&P 500 (SPY), which had a CAGR of 10.3% over the past seven years.
Perhaps the most important metric that matters most to investors is returns. With the focus on common equity investors, we’ve used ROE to measure return.
Borrowing can lead to interest costs that a company must be able to cover from ongoing operations. A ratio of 1.0x means it will take one year to pay off a company’s debt.
Let’s look at EBITDA margins for a ten-year period, which encapsulates one full agricultural business cycle that can last one to eight years.
Cost of production can impact the realized prices of fertilizers and, in turn, impact the profitabilities and valuations of fertilizer companies.
Potash salts are the key cost of production for potash, so most producers have an integrated production.
Energy as well as freight and handling can be the two biggest costs for nitrogen fertilizer production.
Since phosphate rock is one of the major costs of production, companies such as Mosaic (MOS) have an integrated production process.
Investing in the agricultural fertilizer industry can be rewarding. But lately, this industry has come under severe pressure.
There’s a handful of big players in the agricultural fertilizer industry. Setting up business requires huge capital, which makes for a high barrier to entry.
According to the USDA, fertilizer was the major cost of operations in 2015, accounting for as much as 41.0% of operating costs.
Naturally, fertilizer subtypes that are consumed the most globally get the most attention. Let’s see which NPK subtypes are consumed the most.
Fertilizers are commonly labeled using a convention that includes the amount of NPK available in the mix.
Nitrogen, phosphorous, and potassium are the three most important crop nutrients. Their global consumption could reach 186.0 million tons in 2015–2016.
There’s a constant need to bring up the fertility levels necessary to grow crops, and that need is fulfilled by fertilizers.
According to the IFA, fertilizer consumption in the 2010–2011 season was 173.0 million tons. It was close to zero about 90 years ago.
Fertilizers play an important role in the development of crops by providing the required nutrients. They may also improve the quality of crops.
Increasing crop yield on available farmland could be the best solution to the problem of increasing crop production.
In this series, we’ll be taking a close look at the agricultural fertilizer industry and why it serves one of the most important functions in the agricultural sector.
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