In short: A shortage he believes in and still refuses to own — the sharpest "right thesis, wrong instrument" example in the episode. "It's the same reason I avoided fertilizer. A bunch of people made mistakes where they bought fertilizer companies. It crashed because they're like, well, there's a sulfur shortage. But unless the fertilizer company had sulfur on hand, that's a problem — that's gonna hurt their inputs. So there's probably gonna be a fertilizer crisis and it's hard to make money off it." (He could name only one or two Canadian candidates and did not resolve them.)
The most instructive negative in the episode, because he believes the bullish story and still refuses the trade.
Sulfur is a required input for phosphate fertilizer production, and much of the world's sulfur is a by-product of refining sour crude. A sulfur shortage therefore genuinely does threaten fertilizer supply, and would push fertilizer prices up. Plenty of investors reasoned from there straight to buying fertilizer producers — and lost money.
McCracken explains why: "unless the fertilizer company had sulfur on hand, that's a problem. That's gonna hurt their inputs." The producer is a buyer of the scarce thing. A shortage raises its costs before it raises its selling price, and if it cannot pass that through fast enough, the crisis compresses its margin instead of expanding it. Hence: "there's probably gonna be a fertilizer crisis and it's hard to make money off it."
This is the same test he applies to chemicals, and it is the most portable idea on the page: when you identify a shortage, do not buy the industry that consumes the scarce input — find whoever owns it. He could not identify a clean Canadian sulfur owner, so he passed rather than substituting a worse vehicle.
In short: "We increased our fertilizer exposure a little bit, but it's not yet to the point where we're ready to make it a full conviction." Availability is "extremely tight": phosphate transits Hormuz, ammonia and urea are made from natural gas, and Qatari LNG is disrupted — "so it's going to be tough to get those two fertilizers on."
Fertilizer is the quiet second casualty of the Gulf blockade. Phosphate rock ships through the Strait of Hormuz; ammonia and urea are made from natural gas, and the Qatari LNG that supplies much of that gas is disrupted too. Sulfur — a by-product of refining, needed to process phosphate — went from $300 to $1,100 a tonne after roughly half the world's exported supply vanished. So the three main crop nutrients all got harder and dearer to obtain at once.
Rozencwajg has acted on it, but only lightly: "we increased our fertilizer exposure a little bit, but it's not yet to the point where we're ready to make it a full conviction." The reason for the hesitation is that the demand side — crop prices — is genuinely uncertain: a monster El Niño could bring wetter, better growing weather even as fertilizer gets scarce. Worth owning some; not yet worth betting the fund on.
1:00:40And so that's where the El Niño does actually play in because volatility in general I don't think is your friend in this type of a market because demand has been actually so strong. So yeah, there's a risk there. There's certainly a tail risk and it could be fairly dramatic. We increased our fertilizer exposure a little bit, but it's not yet to the point where we're ready to make it a full conviction.
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