Wall Street can never get enough of red-hot businesses like biotech startups, artificial intelligence apps and, of course, fertilizer.
Fertilizer? These days, yes.
The fertilizer industry rarely gets much attention, but when the Iran war began at the end of February, urea had a eureka moment.
While the war’s impact on fuel prices has been obvious at gas stations from coast to coast, a similar inflationary drama is playing out in the fertilizer business — putting an unaccustomed spotlight on CF Industries Holdings of north suburban Northbrook.
This public company with $7 billion in sales last year is a leading global supplier of anhydrous ammonia, a building block of nitrogen fertilizers. CF uses vast quantities of natural gas in its manufacturing facilities, including the world’s biggest ammonia complex in Louisiana. As the price of gas shot up because of supply disruptions in the Middle East, so did the price of fertilizer, and the opportunity for windfall profits.
Investors noticed, driving up the company’s shares as much as 70% in the month after the bombing began, and keeping its stock on a roller coaster ever since.
The focus on this low-profile company is a reminder that the Midwest is loaded with businesses that make good money, but quietly. That includes everything from metal fabricators and waste management operators to companies like CF that serve agriculture. While the growth potential in automobile floor mats or colostomy supplies may not rival that of an AI tech venture, the Illinois economy owes much of its strength to these diverse blockers and tacklers.
The war’s fertilizer angle has not gone unnoticed in the mainstream media, and some of the news coverage has been alarmist. True, the farm sector is under pressure from all sides, and soaring fertilizer prices add another burden. But the Grain Belt is in better shape than the feverish coverage might suggest.
For starters, many Illinois grain farmers applied fertilizer in the fall, months before the war started and prices shot up. Some also contracted ahead for fertilizer, locking in the price well in advance of when it was going to be needed.
While the effect on producers in other regions could be more drastic, the impact on this year’s Midwest corn-and-soybean crop is likely to be manageable. Farmers will probably lean harder into soybeans, which need less fertilizer. Next year’s crop, however, could be vulnerable to a drop in yields if the price stays high.
And if the price stays high, guess who stands to benefit?
CF has a natural advantage over global rivals because it uses a lot of North American natural gas, which is cheaper than Middle Eastern gas directly affected by the war. European and Asian fertilizer suppliers are being forced to charge high prices owing to the high cost of their inputs, while CF can offer competitive prices and still boost its profit margins.
Besides its edge in profitability, CF has a reputation for operational excellence, and it invests heavily in capital improvements each year to keep its production network tip-top. It has partnered with a pair of Japanese companies in the U.S. to build a huge new ammonia plant, at a projected cost of $3.7 billion.
The company also has invested in low-carbon ammonia production and carbon capture. While the Donald Trump administration has reversed policies that support clean energy and de-carbonization, investors still regard CF’s strategic plans as a long-term positive.
For its part, CF is clearly sensitive to the inevitable accusations of price-gouging. On its website, the company weeks ago published, “Key Questions About Fertilizer and Its Price Answered.”
Among the key questions is why CF isn’t sharply increasing supplies, which would help meet demand from farmers around the world. Alas, that’s harder than it sounds. The company points out that it already runs its plants 24/7, and bringing on new capacity typically takes three or four years.
It has, however, postponed a repair and maintenance shutdown that would have idled its Louisiana ammonia plant for several weeks, the company said. It’s prioritizing sales to U.S. farmers and bringing additional railcars online to increase shipping capacity.
More can be done: The federal government could take steps to move liquid natural gas to Europe, India and other destinations where fertilizer plants face shutdowns because of fuel shortages. Exempting fertilizer shipments from some regulations and prioritizing its shipment on railways and barges could help as well.
Also on CF’s wish list: Maintaining good trade relations with Canada, a key supplier of nitrogen fertilizer to U.S. producers and a big source of natural gas. Good luck with that one, given Trump’s outspoken hostility to America’s northern neighbor.
CF had nothing to do with starting the war that so suddenly lifted its prospects. And while farmers are justified in bellyaching about the high price of everything they need to raise a crop, at this point, they have no cause to blame CF.
Let’s keep standing behind this important Illinois corporate citizen. Our future food supply could depend on it.
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