The war in Ukraine looks set to have global consequences particularly in the farm patch. There could also be profits to be made for investors.
Not only are Russia and Ukraine both key grain exporters, but the only crisis will also likely exacerbate an existing problem: A dearth of fertilizer used to feed crops, a recent report warns.
“We don’t see the global fertilizer shortage situation abating anytime soon,” states a note from New York-based CFRA.
It cites three key reasons.
- Natural gas, which is used in the production of nitrogen-based plant food is expensive. Prices for natural gas in Europe, which were already high compared to those in the U.S., have gone crazy this past year, according to data from financial website TradingEconomics.com.
- Russia and China have imposed export restrictions on fertilizer. Both are, or were, big exporters of plant food. The decline in exports makes getting the vital nutrients harder across the globe. China and Russia account for 29% of world exports for nitrogen-based plant food. The two countries also have significant, albeit, smaller shares of the phosphate and potash markets, respectively, the report states.
- Sanctions are also biting into the market as well. “We expect these restrictions to tighten global fertilizer availability and push prices higher as demand ramps up amid the growing season,” the CFRA report states..
The good news in all this is that the companies that manufacture and sell plant food could prosper. Notably, CFRA highlights CF Industries (CF), The Mosaic
MOS
“We expect 2022 earnings for these companies to grow on top of record 2021 profits given the dynamics going on in the fertilizer markets,” the report states. “ This should also open the door for enhanced cash returns to shareholders via dividends and sahre repurchases.”