Investopedia: Mosaic's Opportunities Still Look Fertile

Mosaic (NYSE:MOS), one of the largest fertilizer companies in the world, has already enjoyed a solid run of late, as the shares have doubled from late June. But with crop prices still very high, fertilizer inventories running low and an industry operating at a high level of capacity utilization, it may not be too late to make money off of another bull cycle in crop nutrition. 

The Quarter That Was
Mosaic reported a fiscal second quarter performance that was comfortably ahead of analyst expectations. Revenue jumped 56% in the period, though the inner workings were a bit confusing. Phosphate sales jumped 49% on a 10% increase in shipments (in metric tons) and a better-than-60% spike in average realized prices. The potash segment delivered even better growth (up 69%), as shipments jumped 75% but average selling prices fell about 11%. On a gross profit basis, both units were much better - phosphate gross profits rose 321%, while potash was up 59% and overall company-wide gross profit rose 150%.

Looking Towards a Tighter Market
Mosaic's CEO was rather optimistic about the outlook for 2011, talking about a potentially "outstanding" year to come. There's plenty of reason to buy into that. Crops prices are still quite high, and high prices have the tendency to encourage more planting. Elsewhere, inventory stocks of fertilizers are rather low. Going a step further, it looks like the major producers [including Potash (NYSE:POT), BHP Billiton (NYSE:BHP), Agrium (NYSE:AGU), Intrepid Potash (NYSE:IPI), and Yara (Nasdaq:YARIY)] are going to be running somewhere in the high-eighties to low-nineties as a percent of capacity - a level of production that suggests that any missteps or outages could lead to a spike in prices. (For more, see 5 Agriculture Stocks To Grow With.)

All in all, then, it looks like a year where demand will be strong and supply will be tight. Given that Potash, Mosaic, Vale (Nasdaq:VALE) and BHP control a lot of the new brownfield expansion opportunities, it seems reasonable that they will not crush their own market by bringing on too much capacity too quickly. Moreover, junior potash companies like Allana Mining, IC Potash, and Western Potash are many years away from production and cannot influence current supply. 


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