I bet most
investors wouldn’t even dream of a day when fertilizer would be considered a
safer investment than gold. The mere thought of dirt overpowering a precious
metal would be too ludicrous of a concept to grasp. Unfortunately for these
investors, their nightmare has become a reality. At this point, holding gold
seems nonsensical. In July, circumstances were different. There was a potential
global risk looming about with Ukraine and the Middle East, which lead to
increment surges in the price of the precious metal. Today, there is no such
vast overreaching crisis. Hence wise, there are those who are skeptical about
holding the shiny metal from an investment standpoint. Vishy Karamadam of
Gravitas Financial recently presented his view at the Cambridge House Investment Conference. “There is no
urgency to hold gold at this point in time. The $US is strengthening and global
political conditions seem to be in control.” This is not a sentiment shared by Mr.
Karamadam alone. Many have looked at alternative vehicles to invest their money
in the midst of a turbulent junior market for stocks.
Investors should
always be pragmatic when it comes to the stock market. There is nothing but
harm in remaining overly stagnant on one stock. A good investor is always
looking for an opportunity. But today, investors need not look up but
rather down for a trustworthy investment. Today’s opportunity lies within potash,
nitrogen and phosphate miners. If we look at this sort of investment from a
global scale, we will immediately note a rising dilemma. There are an estimated
7 billion hungry people inhabiting Earth. But experts are claiming that the
forecast number is expected to exponentially increase by the year 2040. Global
population is increasing both in emerging markets and the developed world. This
provides investors with an obvious opportunity. The world needs food to feed
all these hungry mouths. There needs to be key players in the market that can
help meet the over-alarming demand of a growing population.
There are those who
will remain skeptical about fertilizer. Commodity prices are down along with
crop prices. Who is to say that fertilizer prices won’t follow a similar
pattern? A fair point made by some, but I believe that the fertilizer market
needs to be looked at from two perspectives. The long term and the short
term.
In the short term,
it is vital to note that the fertilizer market tends to operate on par with
crop prices. Thus, at a time when crop prices are falling, it is not feasible
to invest in fertilizer. We have gone from around $8 a bushel down to $3.50.
Some are still not convinced that this alone is enough information for investors
to be evasive of fertilizer. There are some analysts who believe that prices of
fertilizers should be surging due to relatively solid balance sheets, solid
nutrient uptake and a relatively correct supply and demand situation. On the
other hand, the other element to consider is the demise of Uralkali’s cartel on
the production of potash. The potash sector was shambled when news came that
Belarusian Potash Company – a joint venture between Belarus’s Belaruskali and
Russia’s Uralkali decided to end their mining cartel. This group along with
Canada’s very own Canpotex was responsible for about 70% of the global potash
production. This partnership was also responsible for acting as an economic
invisible hand to maintain prices of critical fertilizer so that it wouldn’t
float too rampantly. The demise of the cartel has already had vigorous results
in the short run. Immediately, one will notice that the price of potash has
declined rapidly. Compare price points of about $360 per metric ton in the
October 2013 to approximately $287 in July 2014. That is a staggering drop of
$73.
But current
circumstances shouldn’t be discouraging at all for keen investors. As the
saying goes, “Opportunity presents itself.” The global demand for fertilizer is
rapidly increasing. The International Fertilizer Industry Association is
predicting that the aggregate consumption for fertilizer will rise 11% by the
year 2016. Given the estimated rise in demand, it is suitable for investors to
scrutinize the fertilizer industry. The recommended manner to do this would be
through the Global X Fertilizers/Potash
ETF (NASDAQ: SOIL). The ETF is
responsible for tracking 26 different fertilizer-focused firms. The ETF took an
estimated 9% hit following the cartel disbandment news, however it is the best
all-in-one source for tracking all areas of fertilizer production. It is
certainly an intuitive method for capitalizing on fertilizer stocks once the
sector makes a rebound, likely in the long term.
The bottom line is
that patience is a virtue. There are certainly some bumps in the road in the
immediate short run but the overall picture looks rosy for those wanting to
invest for the long term.
Disclaimer: This article was posted with the
permission of a third-party contributor and the opinions contained therein
do not necessarily reflect those of Smallcappower. Smallcappower does not
endorse any investment advice provided by these third-party contributors.
Please consult
your investment advisor before making any investment
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Communication and Ubika Research are not registered with any financial or
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