Fertilizer makes more than plants grow…

… it does a stunning job of making investments grow.

by Glenn Caleval
Views expressed reflect the author and do not necessarily coincide with the views of FNA. The author is solely responsible for the content. See cautionary footnote.

How proud are you to have contributed to a 1,920% shareholder return  to investors in fertilizer companies?

That’s not a typo. It’s one thousand nine hundred and twenty percent shareholder return. So if your investment was $50,000 in 2005, today it’s worth $960,000.

This information comes from a “CF Industries Investor Materials Q1 2015@ presentation open to the public on the company web site. Slide 20 of the presentation shows CF delivered 1,920% total shareholder return since August 2005.Fertilizer delivers 1,920% total investor return

The worst performer in the CF investor analysis, the absolute worst, delivered total shareholder return of 224%. That wouldn’t make $960,000 but turning $50K into $112,000 is not a bad trick for a poor performer.

Slide 12 demonstrates that even if the planned expansions of fertilizer manufacturing all occur, there will continue to be a major deficit in North America that will have to be serviced by imports. Demand will not be measurably impacted by any new plants or added capacity — ie. increasing supply through these new plants will not put downward pressure on demand. What’s more, global demand will require the construction of 4 – 5 new fertilizer manufacturing facilities every year for the foreseeable future. This means that there will be no pressure on North American suppliers to reduce prices as defense against possible low-cost imports. The demand for those imports will be outstripping supply by a considerable and I would say “awesome” amount.

CF Industries Investor Q1-2015 North American  Fertilizer Deficit Continues

Possibly of most interest in the investor presentation is the chart showing the past and expected future performance in capturing the largest possible share of the value of farmers’ crops, in this case corn growers. Their share of what they call “Farmer Anticipated Returns” has exceeded 25% and shows a 10 year average of 21%. So between 1 in 5 and 1 in 4 of every dollar a corn grower earns, he has and is projected to spend on fertilizer. There is no expectation to take a smaller share.

CF Industries Investor Q1-2015 Share of farm revenue

Again, it needs to be clear that fertilizer companies, and in this particular CF Industries, are not doing anything remotely “wrong.” The presentation is a glowing demonstration of how well the company is doing its job for its shareholders. These people deserve a parade not resentment.

The point is not that fertilizer companies should be shamed or blamed, but that farmers should be proactive. Instead of stubbornly forking over 20% of your farm revenue for fertilizer, make some business decisions to get it back.

That’s why I believe investing in Genesis Grain and Fertilizer is good management and getting in on the ground floor of ProjectN is legendary. Consider 10 years after these businesses are built what their investor presentation might look like. One would hope — forward looking statement — that it would be much better than the poorest performer. But then again, a 224% return is nothing to sneeze at.

Views expressed reflect the author and do not necessarily coincide with the views of FNA. The author is solely responsible for the content. Forward looking statements: Information taken from CF Industries materials is properly disclaimed in the original document to contain forward looking statements and this article likewise contains such statements. Nothing in this article can be relied on for any financial or investment decisions of any kind.

See: Original CF Presentation

@Presentation is copyright CF Industries, three graphics reproduced here under fair use provisions for public comment and education.