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Will Fertilizer Stocks Feed These Funds' Growth?

This hot industry has had a mixed effect on funds.

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Fertilizer's not very sexy, but it's a hot commodity these days. Demand is high in fast-growing emerging markets with large populations to feed, such as China and Brazil, and this has led to a number of takeover battles involving major fertilizer producers. Earlier this year, fertilizer giant  CF Industries (CF) outbid a Norwegian firm to buy smaller competitor Terra International, then CF itself became the target of a hostile takeover attempt by rival  Agrium (AGU).

The most recent headlines have come from mining giant  BHP Billiton's (BHP) hostile $40 billion takeover bid for  Potash Corporation of Saskatchewan (POT), the world's largest potash producer. Potash is the most profitable of the three major types of fertilizer, with relatively scarce reserves concentrated in Canada and Belarus. Potash mining is very capital-intensive with high barriers to entry, which is why it's such an attractive business for mining firms looking to diversify. Even as Potash Corporation fends off BHP, it faces potential hostile bids from China, which is one of the world's biggest importers of potash and a major customer of Potash Corporation.

These dynamics have boosted the stocks of fertilizer producers lately, after they were hurt in 2009 by a short-term decline in demand. Potash Corporation is up more than 30% in the past month amid the takeover drama and more than 50% in the past three months. The other three biggest players--Agrium, CF Industries, and  Mosaic (MOS)--are all up more than 30% over the past three months.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.