Fertilizer Finesse

A United Nations study found that fertile soil is being lost at a rate of 24 billion metric tons a year through intensive farming practices.  The Joint Research Center of the European Union noted decreased productivity in as much as 20% of the world’s cropland.  Rangeland that is home to food animals has experienced 27% productivity loss.

Industrial agriculture, which relies on intensive farming techniques, has been painted the villain in the world’s soil productivity problem.  Large commercial agriculture has done a good job of feeding people, but it appears its favorite, value-creating practices are not sustainable.  Soil has not hold up well under fast crop rotations, limited fallow time, chemical fertilizers and irrigation. 

For example, a recent study completed by a Dutch agriculture economist at the University of Abomey-Calavi in Benin, explored the relationship between chemical fertilizer use soil degradation in cotton fields in Benin.  The study found that fertilization practices in cotton fields in West Africa were inappropriate and leading to soil nutrient depletion. 

Industrial agriculture is most prevalent in the United States.  In the twenty-five years between 1950 and 1975, total farm output increased by more than 50%.  This dramatic increase in production has been attributed to the use of hybrid seeds, increased use of pesticides and chemical fertilizers.  At the same time topsoil loss has escalated to the point that now ten times more soil erodes from U.S. fields than is replaced by natural soil formation processes. 

It seems incongruous that what is intended to enhance production actually stifles it.  Chemical fertilizers, especially nitrogen, can lower pH and make the topsoil so acidic it crop yield is actually reduced.  The use of herbicides decreases the amount of organic matter in a field that will decompose and revitalize soil with nutrients.  Indiscriminate use of chemical fertilizers and irrigation has been linked to increased top soil salinity.  The U.S. in particular is badly in need of alternatives.

Fuel for Microbes

Farmers could get help from an innovator like Midwestern Bio-Ag, a developer and producer of fertilizers, seeds and livestock feed.  The company produces a carbon-based fertilizer it markets as TerraNu.  Crop nutrients are embedded in a carbon matrix of dried manure for immediate or long-term availability for soil microbes.  The product is part of the company’s pioneering farming system that emphasizes soil chemistry, biology and structure. 

On-farm trials of TerraNu completed by a third-party in 2018, resulted in increased yield in 86% of the corn fields planted compared to standard fertilizer.  Over 70% of the trials demonstrated improved nutrient use efficiency.  As a group the trials experienced a 12 bushel per acre average yield increase.  Field trials on soybean and wheat achieved similar results.

In March 2018, General Mills (GIS:  NYSE) announced plans to deploy Midwestern Bio-AG’s farming system at a wheat farm west of Pierre, South Dakota.  The farm will convert 34,000 acres to organic certification to grow wheat destined for one of General Mill’s pasta products.  Regenerative soil health practices developed by Midwestern Bio-Ag will be deployed along with the company’s TerraNu fertilizer.

Midwestern Bio-Ag raised $15 million in new equity financing in July 2018, bringing total capital raised to $23 million.   The most recent revenue figure that has been made public for the company was $40 million in total sales in the year 2016.  Expect to hear more from field innovator, especially if the General Mills project is successful.  Investors can expect additional opportunities to get a stake in Midwestern.

One Stop Shop for Soil

The soil remediation industry has a friend in Earthworks Soil Amendments with its broad product line of organic soil conditions, fertilizers and additives.  Earthworks also offers soil analysis, tissue and water analysis services.  The organic fertilizers offered by Earthworks are insoluble and release slowly into the soil through microbial activity.  This is very different from chemical fertilizers that are inorganic and highly soluble.  As a consequence chemical fertilizers release quickly and often are washed away by rain or irrigation water without ever being taken up by plants. 

As a privately held company, Earthworks keeps its financial details close to the corporate vest.  There are not even any tidbits of information on revenue or number of employees that often filter out to the public.  Do not expect many opportunities to get a share in Earthworks.  The company appears to be well-entrenched in the landscape market of California where Earthworks is located.  More likely than not the operation has achieved a left of success to be self-funding with internally generated cash flow.

Bringing City Sludge to the Farm

Lystek International, Inc. has developed a process for converting wastewater into biosolids and other organic soil management solutions.  Lystek partners with municipalities with wastewater treatment plants to tap what is otherwise a cost center into a revenue producing resource.  Lystek has developed a low-heat, low-cost thermal hydrolysis system for anaerobic digestion of biologic material.  The system disintegrates microbial cell walls and hydrolyses complex macromolecules into simple compounds.  Deployed in a container directly at the wastewater treatment plant site, the system does not interfere with an of the other collection processes.

The Lystek system produces a high-quality, pathogen-free fertilizer product that is marketed in the community as LysteGro.  The biofertilizer provides farmers with an economical alternative to build soils low in phosphate, potassium and organic matter.  As much as 75% of the nitrogen in LysteGro is in a slow-release organic form that is made available to plants through mineralization over a period of time.

An operating agreement with the City of North Battleford, Saskatchewan was recently renewed with Lystek for another five years.  North Battleford was among the first municipalities to partner with Lystek and the renewal suggests a successful relationship.  The Lystek system had a capital cost near $3.2 million and initially had an operating cost near $21 per metric ton.  

The Lystek system is deployed in a number of other Canadian and U.S. communities.  Agreements are a mix of municipal ownership or Lystek ownership.  Lystek’s role varies as well from a simple design-and-build to design-build-operate.  In some cases, Lystek is also involved in marketing the fertilizer product to local farmers, landscapers and gardeners.

The most recent operating agreement was signed with the City of Guelph in October 2018.  Guelph had hosted Lystek’s pilot plant during the development stage of the system.  The agreement ushers in the deployment of Lystek’s first mobile processing unit that is particularly good for communities with smaller scale water treatment plants.   

Availability of LysteGro to farmers is limited by the number and location of communities that set up the Lystek system.  Capital costs are competitive with alternative biosolids handling solutions and revenue from fertilizer products more than likely fully cover operating costs.  It appears that the greatest limitation to Lystek is not economic.  Some proposals have been met with local opposition concerned about noise, orders and extra traffic that could result because of the system.

The ability to penetrate its markets is a key to making Lystek International a compelling investment opportunity.  So far the company has been run more like an engineering services firm.  Limitations on capital may have been one factor that has prevented Lystek from taking equity positions in its projects.  Investors may have an opportunity to participate if  Lystek management takes that next step in its business model evolution.

The next post in this series on top soil turns to industrial agriculture.  These small organic fertilizer companies do not seem to be much of a threat.  However, industrial agriculture may have another, more pressing problem.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.