“Corner the Chinese Fertilizer Market”

By Travis Johnson, Stock Gumshoe, June 23, 2008

As another week of panic, fear, high oil prices, and skyrocketing food prices begins, let’s see if we can discover one of the folks likely to profit from the world’s hunger.

Wow, that sounds much worse than I meant.

OK, so we’re on the hunt for a fertilizer profiteer.

Sorry. Just kidding!

What we want to find is the special Chinese fertilizer company that makes a product specifically tailored to the most popular brand of hybrid rice in China. I don’t know if we want to buy the company’s stock, but Ian Wyatt and the folks at Growth Report are getting my palms all itchy and causing my cheeks to flush with an upswell of greed. So we’re going to at least have a look.

Growth Report is, you’ll be unsurprised to hear, a growth-oriented newsletter — I’ve only written about them once before, and that was when they were touting Oilsands Quest back in May (as many others have before and since, including Jim Cramer on Friday, whose enthusiasm for the shares sent them up to new highs in pre-market trading Monday morning).

Anyway, we learn a few things about this stock — including a little lesson in the history of famine and food innovation in China, which is actually somewhat interesting (never let it be said that you can’t learn something from marketing copy … though unlike Reagan’s “trust, but verify” I’d just say “verify”).

The story we’re told is about hybrid rice, which was invented in China — largely by a man who is a national agri-celebrity in the Middle Kingdom: Dr. Yuan Longping.

Here’s the background story, in case you want that little history lesson:

“In the [sic] 1958, Mao Zedong made one of many tragic mistakes in his Great Leap Forward. In an effort to boost rice crop yields, he started the “’Kill a Sparrow’ campaign.

“Mao thought getting rid of animals that ate rice crops would improve yields. He was wrong. Without this important natural predator, populations of locusts ballooned. The insects devastated the rice harvests. Between 1959 and 1961, 38 million Chinese died of starvation.

“Deeply affected by this tragedy, a young scientist named Yuan Longping started his life’s work in 1964.

“In 1974, Dr. Yuan released Nan-you No. 2, the world’s first hybrid rice strain. It was a wild success. Rice crop yields rose 20%. Dr. Yuan’s hybrid rice now accounts for over half of China’s total harvest. And the increased yield is believed to have saved 60 million Chinese lives.

“Today, Dr. Yuan’s groundbreaking research is widely credited with lowering starvation rates around the world. He’s also something of a celebrity in China, as well as a pretty savvy investor. He owns 5% of the Yuan Longping Hi-Tech Agricultural Co. LTP. His name appears on every bag of rice seed the company sells.”

This is why farmers aren’t clamoring at the White House gates for recommendations from the President about how to increase crop yields, I suppose … but for investors, what’s the point?

It is that Ian Wyatt and his folks believe that China is going to be desperate for more efficient farming techniques, and more effective use of fertilizer that’s less wasteful and less polluting, or something along those lines … and since Longping rice is by far the dominant brand of rice, apparently, the recommendations from it’s eminence grise will hold significant sway for farmers when they decide which fertilizer to use with that rice.

Or maybe, as Wyatt infers, the Chinese government will actually require them to use this brand of fertilizer. I have no idea. Here’s what Wyatt says:

“When the Chinese Government Tells Farmers to Buy This Company’s Fertilizer, They’ll Do It — By the Truckfull

“This Small Chinese Fertilizer Company Holds the Key to Higher Yields and a New Age of Prosperity for China’€™s Farmers”

If there are any impressionable elementary school students doing their wisdomificatin’ on the site today, note that no, the rules of capitalization haven’t changed … that’s not one of the things we’re supposed to learn from ads. You needn’t Capitalize Every Word of Every Sentence.

Essentially, Wyatt argues that the problem of nitrogen runoff has become acute in China, with Algae blooms and similar problems destroying lakes and such. This company apparently has a solution, though, and that’s why China will push for use of its product:

“This Chinese fertilizer company I’ve been talking about – the one that could rise 237% or more – has perfected time-release fertilizers that bond to the plant and the soil. Run off is minimized. And the crops get a longer supply of life-giving nutrients, which means farmers can actually use less fertilizer to grow more rice.

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