Agricultural giant Mosaic (MOS) plummeted in price from $106 at the start of this month to $77 yesterday and up to $86 today, as the herd stampeded out of anything having to do with commodities. Certainly, it is recognized that fertilizer stocks have had a phenomenal run over the past five years, which has attracted the momentum crowd, but analysts don't see any recent demand destruction as farm profitability in the next planting season looks substantially higher than in the last and potash pricing in August continued to rise. In addition, the annual report just received earlier this week highlighted numerous reasons for long-term optimism, over and above the fact that respective Mosaic's consensus EPS expectations, according to Reuters Estimates, for fiscal 2009 and 2010 are currently $13.80 and $16.93 and the company has a mountain of cash on its balance sheet that is likely to grow significantly larger over the next few years.
Keeping in mind that there are obvious biases in what the company presents to its investors, Mosaic Annual Report summary bullet points include:
1) Food demand is growing faster today than in the past because of population growth and per capita income growth, especially in the developing world
2) During the past 5 years, demand for major grain and oilseed crops has grown at twice the rate of the previous 10 years
3) World population growing 1.1% per year, equivalent of adding Thailand to the world every year
4) Average GDP per capita is up 2.4% per year during the last 5 years vs. 1.4% growth in the previous 10
5) More per capita income means more protein consumption which requires more grain usage. One pound of beef, pork or chicken requires seven, four and two pounds of grain
6) Biofuels have contributed to demand but still account for a tiny percentage of global grain use (ethanol = 3.3%)
7) In 2008, grain and oilseed inventories as a percent of daily use dropped to the lowest level in 35 years. The world has used more than it has produced seven of the last eight years
8) Yield growth is decelerating due to lack of investment in the sector because of global surpluses in previous decades
9) Global nutrients are expected to increase 20 million tons from 2006 to 2008, the equivalent of adding another United States to demand.
I think it's safe to buy MOS up to $90.