Agriculture Resources

A valued Independent Stock Analysis member inquired about the mineral fertilizer group, including Potash (POT) and Mosiac (MOS), as well as the uranium industry and Cameco (CCJ).

I do not have significant and unique insights into these sectors and companies.  However, I’ll try to give a running start.

The agriculture thesis is simple.  A robustly growing world population is matched against declining arable land.  As the emerging market poor exit extreme poverty, they desire an improved diet including meat protein.  Get yourself to an income of $3000 a year and perhaps some chicken will enter your diet, which will require four time the grain inputs.  Income higher still?  You’ll start eating beef will will takes 10x or more grain calorie inputs.

Thus “In a new report, leading water scientists say the human population would have to switch to an almost entirely vegetarian diet by 2050 to avoid catastrophic global food and water shortages.”  Natalie Wolchover

Jim Roger’s pushes agriculture investments, regularly suggesting to CNBC’s Maria Bartiromo to quit TV and become a farmer.  Don Coxe has long been a chief agriculture investment bull.  ISA often references the ag theme.  But from there, details become sketchy.

One place I start is the company’s themselves.  See POT’s latest investor presentation.  Generally, the more quarters I follow a company the more comfortable I become with the potential investment (POT’s Q3).  The investor relations page of Mosiac.

While good sources of information, always remember management and investor relation departments have a bias toward optimism as they’d like you to buy their shares.  The AG shares became mo-mo favorites in the 2007-08 time frame as their commodity products were repriced to a new higher price deck.  Generally, I have the view POT and MOS are sound companies, with multi-century resource base lives, trading at rich multiples to cash flow and earnings.  More recently cash flow multiples have become more reasonable.  However, POT trades at 4X sales and lower margin MOS trades at 2X sales.  Not great starting points for large gains imo.

Two years ago BHP tried to buy POT in a blockbuster $39 billion hostile takeover, but was rebuffed by the Canadian government.  So BHP is looking to greenfield projects and BHP may be looking for partners in potash (AG Professional).  Tight markets send prices much higher; oversupplied markets see prices plummet.  The line between is thin.

Some resources:

A favorite Coxe Ag play is Deere (DE).  Perhaps the limited availability of public AG investments vehicle is a root cause of the the past high valuations.  So much more so for CCJ.

But I have run out of time.  I hope this helps.  Great question!  Uranium is on tap for next week…