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Investing in fertilizer–mining companies in times of food scarcity

Author

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  • Geman, Helyette
  • Vergel Eleuterio, Pedro

Abstract

The primary goal of the paper is to show the validity of investing capital in fertilizer–mining companies, both from a market return perspective for individual or institutional investors, or from a hedging standpoint for insurance companies and other economic actors exposed to inflation risk and high agricultural commodity prices. After providing some elements on the fertilizer market and describing the joint dynamics of corn, wheat and fertilizer prices over the last decade, we analyze an exhaustive sample of listed fertilizer producing companies over the years January 2004–December 2012. We show that their shares generated quite good returns over the whole period and extremely high ones during the years January 2004–December 2007, both in absolute terms and compared to their betas. We also exhibit that these returns display higher sensitivities to major agricultural indexes than to the World Bank Fertilizer Index, making the hedging argument quite compelling.

Suggested Citation

  • Geman, Helyette & Vergel Eleuterio, Pedro, 2013. "Investing in fertilizer–mining companies in times of food scarcity," Resources Policy, Elsevier, vol. 38(4), pages 470-480.
  • Handle: RePEc:eee:jrpoli:v:38:y:2013:i:4:p:470-480
    DOI: 10.1016/j.resourpol.2013.07.004
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    References listed on IDEAS

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    1. Hélyette Geman & Vu-Nhat Nguyen, 2005. "Soybean Inventory and Forward Curve Dynamics," Management Science, INFORMS, vol. 51(7), pages 1076-1091, July.
    2. Du, Xiaodong & Yu, Cindy L. & Hayes, Dermot J., 2011. "Speculation and volatility spillover in the crude oil and agricultural commodity markets: A Bayesian analysis," Energy Economics, Elsevier, vol. 33(3), pages 497-503, May.
    3. repec:dau:papers:123456789/1937 is not listed on IDEAS
    4. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    5. Blose, Laurence E. & Shieh, Joseph C. P., 1995. "The impact of gold price on the value of gold mining stock," Review of Financial Economics, Elsevier, vol. 4(2), pages 125-139.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Lahmiri, Salim, 2017. "Asymmetric and persistent responses in price volatility of fertilizers through stable and unstable periods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 466(C), pages 405-414.
    2. repec:eee:jrpoli:v:52:y:2017:i:c:p:81-89 is not listed on IDEAS
    3. Lahmiri, Salim, 2017. "Cointegration and causal linkages in fertilizer markets across different regimes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 181-189.

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