Green shoots in a red market
These are certainly some of the most turbulent markets that I have seen certainly in my lifetime and I can’t see it settling for a little while yet. Finding an investment thesis in finding an industry that will benefit is quite difficult however there is a sad but true one developing. Each night we put on our TV these days we see signs of drought, food shortages or even flooding which are now heavily disrupting our lives. Aside from the high of COVID, I would challenge anyone to find a point in time when going to the supermarket has shown so many gaps in the shelf with products just not as available as they once were. For those of us with money, we will absolutely pay what it takes to keep ourselves from going hungry in these odd times.
So what is this thesis that I am talking about and how is it about to grow or increase? Well, first I think we would all safely say that getting as much food to the global markets for people to buy and consume is the utmost priority. We need those farmers and producers to get as much as they can out of their farms as fast as they can. To do this speed of their growth will become more important than ever before. One of the key ingredients to drive this is fertilizer, and one of the kings of this space is the commodity of Potash. This little-known commodity interestingly was used by Germany in the first world war as they were just before the war one of the largest global producers on the planet. They had been one of the first countries to research and find that by using this product on their crops they were able to increase the crop yield considerably and they exported it as a result. So how did the Germans use it? They cut off its sale to the world prompting a swift response by the US Congress to quickly find alternative sources given their high reliance on it. Now if you cast your eye on the table below and the countries that are the top producers you can’t help but wonder if history is repeating itself a little.
It is quite ironic that of the top 5 global producers 3 of them have recently cut off their sales to the rest of the world and also have attacked one of the world’s largest food producers Ukraine. Further, a scary fact that again most people don’t realize is that within Ukraine 45% of the food that the country exports come from that southeastern corner of the country which is largely centered around the Donbas area. Getting that land back into Ukrainian hands I think many would agree will either take years or it may stay in Russian hands-only making the situation worse.
Looking at these two sets of data I think it’s hard to argue around the storm that we find ourselves in. The world’s largest Potash company based in Canada is Nutrien. Looking at the recent share price movement as of last week, Nutrien had handed back all the gains that it had before the Russian invasion, sanctions that were imposed and subsequent export bans that were imposed. This could be recent market pressures that have caused this but from everything that I am seeing at the moment I think exposure to Potash could be beneficial and so I’ll sit with the biggest player.
There is always the chance that Putin may see some logic and back down and give back all his gains say sorry to everyone in the next 6 months and so a large part of this thesis may go away. Sadly I think Clive Palmer has a better chance of putting in place the next Australian Prime Minister at the next election than that scenario coming through. Canada could also decide to limit exports which while can’t be ruled out I think Justin has a little more sense than that and also Canada doesn’t have enough farms to completely soak up that kind of supply.
In an increasingly desperate world, I see Nutrien as one particular stock that may benefit due to a sad set of circumstances that we find ourselves in.
At the time of writing this article, Nutrien was worth $98.83 CAD.
