The fertilizer industry has had a solid run in 2021, thanks to strong global demand and prices of crop nutrients. Strong agricultural market trends, a rally in crop commodity prices and attractive farm economics have driven demand for fertilizers globally this year. A tight global supply-demand balance has boosted fertilizer prices and profit margins of fertilizer stocks. The momentum is expected to continue in 2022, backed by strong demand and pricing fundamentals for crop nutrients.

As such, stocks with compelling prospects like Nutrien Ltd. (NTR Quick QuoteNTR - Free Report) , CF Industries Holdings, Inc. (CF Quick QuoteCF - Free Report) and Yara International ASA (YARIY Quick QuoteYARIY - Free Report) are worth adding to your portfolio for 2022.

Fertilizers to Ride High in 2022 on Demand & Pricing Strength

Solid grower economics and higher crop commodity prices are spurring demand for major fertilizers such as potash, phosphate and nitrogen. Prices of corn and soybean have rallied to multi-year highs this year. Strong global demand coupled with supply constraints has boosted crop commodity prices. Higher freight, energy and labor costs and raw material shortages have contributed to the upside. Higher agricultural commodity prices augur well for crop nutrient demand in 2022.

Despite the expectations of lower year-over-year planted corn and soybean acres globally in 2022 due to higher crop input costs, strong farmer profit margins driven by an upswing in crop commodity prices are likely to boost fertilizer demand next year. Grower economics remain attractive in most global growing regions on strong crop demand. In the United States, solid farm profits and higher planted acreage are expected to drive demand for fertilizers. Strong farmer economics are also expected to support demand in major markets such as Brazil and India.

The U.S. Department of Agriculture expects U.S. net farm income to increase 23.2% year over year to $116.8 billion in 2021, the highest level since 2013. The upside is expected to be driven by higher cash receipts from the sale of agricultural commodities. Solid farm income backed by higher agricultural commodity prices will likely drive farmers’ spending on crop nutrients.

Global demand for potash is expected to be driven, in 2022, by strong grower economics and higher crop commodity prices amid limited supply availability. Demand for nitrogen fertilizer also remains strong. Higher economic activities contributed to increased industrial consumption of nitrogen products in 2021 and the same is likely to continue into 2022. Global nitrogen requirement is expected to be driven by demand in North America, India and Brazil.

Potash prices have also strengthened on the back of robust global demand and tight supply. Tight availability along with healthy demand is also driving phosphate prices globally. Higher demand and lower supply availability resulting from reduced operating rates across Europe and Asia due to higher energy prices has also fueled increases in nitrogen prices. A spike in natural gas prices in Europe has triggered nitrogen production curtailments, driving global nitrogen prices. The pricing momentum is expected to continue next year on strength in crop markets and global supply constraints.

3 Stocks to Scoop Up

The fertilizer industry is reaping the benefits of the underlying strength in the global agriculture markets. Factors like solid farm income and a rally in crop commodity prices support the bullish case for fertilizers next year. As such, it would be prudent to add some fertilizer stocks that offer compelling prospects in 2022.

Below we have highlighted three stocks, each with a Zacks Rank #1 (Strong Buy), that are attractive options for investment right now. These stocks have also racked up healthy year-to-date returns and witnessed positive estimate revisions over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutrien: Canada-based Nutrien is benefiting from solid demand and higher prices for crop nutrients on the back of strength in the global agriculture markets. NTR is also gaining from acquisitions, cost efficiency and increased adoption of its digital platform. The company also continues to expand its footprint in Brazil through acquisitions, including Tec Agro. These factors have contributed to its share price appreciation of around 50% year to date.

Nutrien has an expected earnings growth rate of 42.2% for 2022. The Zacks Consensus Estimate for earnings for 2022 of NTR has moved up 37.4% in the past 60 days.

CF Industries: Illinois-based CF Industries is gaining from higher nitrogen fertilizer demand in the major markets. It is seeing higher nitrogen demand in North America for industrial uses. Higher nitrogen prices aided by strong global demand and lower global supply availability are also driving the company’s top line. CF remains committed to boosting shareholders’ value by leveraging strong cash flows. These factors have resulted in a share price rally of roughly 77% this year.

CF Industries has an expected earnings growth rate of 235.3% for 2022. The consensus estimate for earnings for 2022 for CF has been revised 95.8% upward over the past 60 days.

Yara International: Norway-based Yara International is benefiting from strength in the nitrogen fertilizer market. Rising nitrogen prices on strong demand and tight supply are supporting its margins. YARIY is also gaining from a recovery in its industrial business on the back of a rebound in demand. It is seeing strong industrial nitrogen demand. These factors have contributed to its share price gain of 19% year to date.

Yara International has expected earnings growth of 36.4% for 2022. The consensus estimate for earnings for 2022 for YARIY has been revised 70.9% upward over the last 60 days.