Being in the commodity business (grain brokerage) we frequently see price fluctuations on our commodities - corn, wheat, canola, etc. I am going to highlight fertilizer, and more specifically one of the largest producers of fertilizer in North America. The Mosaic Co (NYSE:MOS).
The advantage of looking at a company like Mosaic is they are a publicly traded company and have published all of their financial data quarterly for decades. You can track their Earnings, Revenues, Operating Margins, CEO letters, what the CEO said on earnings calls, and so much more.
We have been having supply chain challenges on everything and this is creating shortages on fertilizers. With these shortages the North American Fertilizer Price Index is showing prices going from $370 in 2019 to a high of $1270 in 2022 (Link). For reference, the previous high was $930 in 2008.
In the news, we get sensationalized headlines stating a company has reached record revenues of unfathomable billions or revenues have grown by large double digit percentages. These headlines are formulated to cause an emotional response. The headline, and in most cases the article do not get down to the bone in details but rather stay superficial on purpose.
In 2009 Mosaic had revenues of $10.3 billion compared to 2021 of $12.3 billion (nearly 20% growth over a 11 year period for 1.6% annualized return). Earnings have shrunk from $2.35 billion to $1.63 billion (30% decrease or 3.3% annualized). Operating Margins in 2009 were 23.8% and in 2021 they have shrunk to 22.4%. Compared to 2020 Operating Margins have increased significantly from 8% to 22.4%. Operating margins in 2019 were 6.1% and 8% in 2020. This is a 4x increase on operating margins since 2019.
The increase in fertilizer price certainly helps their margins but it appears these returns diminish at certain prices. In this post I will not get into the reasons for these decreases but if readers are interested I can post a much deeper look into what is happening here.
One thing that is clear, Mosaic is a cyclical company who relies on prices swings to increase their margins and bolster profits. As a long term investment they may not be the most reliable place to sock your savings as we have pointed out earnings and cash flows have decreased slightly over a 11 year period.
Let me know do you think companies like Mosaic are taking advantage of the current market? Should we demand more regulation from governments to cap what these companies can earn when they have the upper hand? Or should we keep our markets free from the invisible hand?