The United Nations predicts that world population will reach 9
billion people by 2050. That's an increase of 33% over the world
population right now.
It also says that global food output will have to increase by 70
percent to meet rising demand.
reports that farmers are already ramping up crop production to
The forecasted supply-demand imbalance for crops led futures
prices for corn to nearly double in the past year - adding to the
surge in prices many U.S. 'breadbasket' states suffered through a
dry growing season.
During the same time, wheat prices rose 65 percent, in part due
to fires and drought in Russia and Eastern Europe, as well as
flooding in Australia. All of this is leading to inflation in food
prices, as well as some soft commodities such as cotton.
Americans aren't excited about higher food prices, but we're far
better off than most people in the undeveloped world. Already, in
some countries food riots are breaking out. In other countries,
where growth has actually helped raise living standards, many
citizens of developing countries can afford to buy more meat and
dairy products. The International Monetary Fund says because of
this, farmers will be hard-pressed to meet demand for grains to
feed humans and livestock for decades.
***A basic building block of agriculture is fertilizer. To help
increase crop yields, fertilizer producers are enjoying a boom in
their relatively obscure industry. Investors take note; If you want
to prepare for higher food prices, you should get back to basics
and buy fertilizer stocks.
The three primary components of fertilizer are nitrogen,
phosphorous and potassium.
Terra Nitrogen L.P. (
is one contender, the $2 billion market cap company (a limited
partnership) is a leading U.S. producer of nitrogen fertilizer
The stock also pays a nice quarterly distribution that yields
north of 4.5 percent annualized. Additionally, earnings per share
have increased significantly, from $5.40 in 2009 to $8.01 in 2010,
an increase of 48 percent.
Terra Nitrogen's sole plant in Oklahoma can crank out 1.9
million tons of nitrogen fertilizer and 1.1 million tons of
ammonia, a basic ingredient of fertilizer and other industrial
products. It takes air, water and natural gas to produce
During the fourth quarter, Terra Nitrogen reported increases of
51 percent in ammonia and 34 percent in urea ammonium nitrate (UAN)
selling prices. Ammonia sales volume increased 56 percent while UAN
sales volume decreased by 2 percent.
Investors have grown to appreciate Terra Nitrogen's cash
distribution. In 2007, the partnership began to truly ramp up
quarterly payments, which reached as high as $4.45 in early 2008.
In early 2010, Terra missed a distribution, but these were resumed
The latest distribution for fourth-quarter 2010 was $1.36,
bringing the full-year payout to $5.44 and a substantial annual
yield of 4.7 percent. By comparison, the S&P 500's dividend
yield is around 1.7 percent.
Considering that net earnings in the final three months of 2010
nearly tripled over the 2009 period, it's quite possible that Terra
Nitrogen will continue to increase earnings distributions. The
partnership's profit margin and operating margin are both above 35
***To prepare for higher food prices, a dividend paying
fertilizer like Terra Nitrogen should be on the top of your list.
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