We recently compiled a list of the 10 Worst Farmland and Agriculture Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where The Mosaic Company (NYSE:MOS) stands against the other farmland and agriculture stocks.
The $5 trillion food and agriculture sector has experienced significant changes over the past six decades. Technological advances, resource allocation, and production processes drove these changes. The global agricultural output has been impacted by the Green Revolution of the 1960s as well as the advancements in modern biotechnology. According to the US Department of Agriculture (USDA), the production of the agriculture sector quadrupled between 1961 and 2020. This jump is largely due to technological advancements and increased land use. Therefore, innovations over the years have enabled the sector to meet the ever-increasing demand. However, this industry is still facing challenges. Productivity growth has stunted over the past decade, which creates concerns regarding the sector’s ability to meet the world’s increasing demand.
Furthermore, the global agricultural sector has changed dramatically over the years, owing to the increasing involvement of the Global South (Africa, Asia, and Latin America) in overall production. The region contributed an astounding 73% to the global output by 2020. According to McKinsey & Company, the Global South’s contribution to overall production is expected to grow as emerging markets look to modernize their agricultural sectors. Such a change has been majorly driven by technological changes in crop science, irrigation systems, and machinery, enabling the sector to gain larger yields given the same amount of land. Moreover, easing inflation in the U.S. toward the end of 2024 resulted in reduced input costs, especially energy costs, meaning improved margins for the sector.
However, the Total Factor Productivity (TFP) – an important metric for assessing resource management efficiency in agriculture – has faced a slump in recent years. The global TFP has dropped to 0.9% in the last decade, compared to 1.6% in the early 2000s. With the global food demand expected to increase by 60% by 2050, a slowdown in productivity growth comes as a major concern. This stagnation could lead to a rise in food prices, an expansion of agricultural land, and elevated pressure on ecosystems that are already under pressure due to climate change. Around such skepticism, the Farm Products sector has experienced negative returns on a YTD and 6-month basis, while S&P reported 5.80% return on a 6-month basis.
To mitigate these concerns, the agricultural sector needs to counter the global demand with sustainability. Accordingly, McKinsey highlights the need for investment in innovative technologies like precision agriculture, artificial intelligence, and satellite-based monitoring systems. Such technologies can add to efficiency as well as a reduction in the industry’s environmental footprint. For instance, farmers are now able to make informed decisions through AI-driven data analytics, leading to an improvement in yield forecasting and optimization of input usage. It is expected that investment in relevant technologies could lead to an increase of over 25% in the agricultural output over the next 10 years, according to McKinsey.
Methodology
For this article, we shortlisted a list of stocks within the agricultural inputs and farm products sectors using the Finviz screeners. We also considered our previous articles on the industry to ensure relevant inclusions in our list. Using the extensive list, we selected companies that demonstrated strong market capitalization.
Next, we looked into the number of hedge funds invested in these companies, which is considered a dependable indicator of firm performance. Moreover, we noted down the short percentage of float for all the companies, which is a testament to the negative sentiment or short interest in the stock. Finally, the shortlisted stocks were ranked in ascending order of their short percentage of float.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A farmer tending to his crops in a field, with a fertiliser bag nearby.
The Mosaic Company (NYSE:MOS)
Number of Hedge Funds: 41
Short % of Float: 3.11%
The Mosaic Company (NYSE:MOS) is one of the top producers of phosphate and potash fertilizers, which are essential sources of crop nutrients. The company plays a vital role in the global agriculture industry through its Phosphates, Potash, and Mosaic Fertilizers segments.
The company reported revenue of $2.8 billion for the quarter ended September 30, 2024, as well as net income of $122 million and an adjusted EBITDA of $448 million. Mosaic faced operational challenges during this quarter, such as electrical problems at its Esterhazy and Colonsay potash mines, and weather-related disruptions. These setbacks led to a temporary decline in their production. However, the company was able to restore its operations, now on track to meet its production targets of 7.8 to 8.2 million tons of phosphate annually.
The Mosaic Company (NYSE:MOS) has faced pricing pressures and production losses of 250,000 tons for its Potash segments. These losses are attributed to power outage and weather-related disruptions as discussed above. However, the market is now emanating signs of stability. The company reported an EBITDA of $265 million for its Phosphates segment due to stronger stripping margins and efficient management of its supply chain. To improve profitability and efficiency, the company has put into action a $150 million cost-cutting strategy. This strategy primarily focuses on reducing operational costs and optimizing production capacity.
Furthermore, The Mosaic Company (NYSE:MOS) expects the demand for fertilizers to remain strong as crop production increases, especially in Brazil and Southeast Asia. Potash pricing has also seen a reversion after its initial declines due to overall demand recovery and compact supply.
While the company’s efforts to optimize operations, manage costs, and streamline its asset portfolio put it in a strong driving position moving forward, The Mosaic Company (NYSE:MOS) still faces concerns regarding market volatility as well as supply disruptions. Furthermore, Potash pricing projections still remain uncertain, posing increased risks. Thus, the sentiment remains skeptical among the short sellers regarding the stock’s short-term outlook.
Overall MOS ranks 9th on our list of the worst farmland and agriculture stocks to buy according to short sellers. While we acknowledge the potential of MOS as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MOS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.