The agricultural industry has been booming over the past several months thanks to higher and higher crop prices. Higher crop prices making farming a more profitable enterprise. When farmers are profitable they spend money on maintaining and improving their farms. One of the things they buy is fertilizer.

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A Lot to Like
Fertilizer contains essential nutrients for robust, healthy crop growth. The vast majority of agricultural land requires fertilizer in order to produce maximum yields. Fertilizer is a necessity to farmers, not a discretionary purchase. Of course when low crop prices create poor farmer economics, the demand for fertilizer will fall. Farmers will simply choose to apply less fertilizer than required when crop prices are low. However, at some point soils get depleted, and when this happens a farmer has to buy fertilizer regardless of the conditions. In short, fertilizer is a great long term commodity with lots of favorable characteristics. Even when data comes out that sends shares of fertilizer companies lower, the news is actually good from a long-term perspective.

More Acres, More Fertilizer
This week the USDA released a corn report that revealed that more acres of corn had been planted than most had expected. The news sent fertilizer stocks lower. More corn plantings implies a greater supply of corn which on its own helps alleviate corn prices. A lower corn price means farmers make less per acre and so the thinking is that farmers will spend less. However, when more acres are planted, more fertilizer is being used, so the stock price reaction may not be accurate. Across the board the share price of leading fertilizer companies CF Industries (NYSE:CF), Mosaic (NYSE:MOS) and Agrium (NYSE:AGU) fell on the news.

Bottom Line
Considering the attractive long-term fundamentals of the fertilizer industry, investors may want to look closer when share prices show significant declines. Demand for agricultural products will likely remain robust for quite some time thanks to demand from populous nations such as China and India. You can invest in a basket of these type businesses instead via the Market Vectors Agribusiness ETF (NYSE:MOO). This ETF owns all the major fertilizer players plus other important names in the industry like Monsanto (NYSE:MON) and Deere (NYSE:DE). Any way you look at, ag stocks are long-term plays and are becoming more attractive during the market sell off. (For related reading, take a look at 5 Grocery Staples That Are Going Up In Price.)

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Tickers in this Article: MOO, MOS, CF, AGU, MON, DE

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