Impressive Market Value of Soil Amendments

Soil is disappearing from farms.  The U.S. Department of Agriculture reports that in the 20^th Century the average topsoil depth in Iowa decreased from a range of 13.75 inches to 17.75 inches to a range of 5.90 inches to 7.87 inches.  Since yield is directly related to topsoil depth, the loss of soil for crops t the heart of the U.S. ‘bread basket’ is alarming.  What is the driver of this potentially catastrophic development?  Poor farming practices such as inadequate fallow periods, excessive fertilizer use and poor irrigation practices.

The situation has given rise to a new market for soil conditioners.  These additives or amendments help improve soil’s physical qualities, increase water holding capacity and restore fertility.  Soil conditioners are different from fertilizers that do not change soil structure or create top soil suitable for farming.  Industry research firm Million Insights estimates the global soil conditioners market will increase in value to $7.9 billion by 2025, representing a compound annual growth rate near 5.7% from a base value of $5.4 billion in 2018. 

Large chemicals companies and the agriculture giants have added soil amendment product lines.  Consequently BASF, S.E., Syngenta, A.G. and Solvay, S.A. are considered the market leaders.  Most industry analysts look at these agriculture industry leaders and others in the sector from the standpoint of product type or by crop type.  However, for the investor with an interest in environmental friendliness, the producers of natural soil amendments will be more interesting than those that have repurposes synthetic compounds.

Based on upstate New York, BioSoil Farm, Inc. has an interesting history with soil.  The company got its start as a worm farm, selling worm castings to clients the world over.  Recently the company has begun dabbling in food waste recycling and cannabis waste remediation and recycling.  BoiSoil Farm has also started raising hemp.  The privately held company was started apparently from the founders investment.  More recently the company raised $500,000 from friends and family to get the hemp business going.  If the company is to expanded, expect to see BioSoil coming back to capital markets for additional financing through another private placement.

Halfway around the world, Germany’s Sanoway, GmbH has a much less eclectic product line.  SanoPlant help soils store water and nutrients, reducing the need for irrigation water by 50% and SanoVit combines lava granules with malt sprouts for better aeration and availability of organic nutrients.  Additional products support more effective and efficient irrigation and fertilization.  As a private company, Sanoway leadership keeps the company’s financial details close to the corporate vest.  If sector growth develops and industry analysts predict, Sanoway may need growth capital to finance a grab of market share.  For U.S. investors that means some due diligence to make connections with Sanoway management. 

 

SOIL AMENDMENT SECTOR
Name	Symbol	Products	Price	Price/EPS
Adeka Corporation	4401:  Tokyo	Specialty chemicals	US$12.85	10.54
Akzo Nobel, N.Va.	ALSA:   AS	Industrial chemicals	US$33.21	37.27
Aquatrols Corp.	Pvt.	Soil surfactants	na	na
BASF, S.E.	BAS:  DE	Industrial chemicals	US$15.24	44.92
BioSoil Farm, Inc.	Pvt.	Worm castings	na	na
Clarient International	CLRN:  SG	Specialty chemicals	US$20.94	20.76
Croda International	CRDA:  LON	Basic materials	US$79.05	37.11
Dow Chemical Corp.	DOW:  NYSE	Industrial chemicals	US$46.05	58.14
Eastman Chemical	EMN:  NYSE	Industrial chemicals	US74.43	17.47
Evonik Industries	EVK:  BE	Specialty chemicals	US$29.65	18.84
Loveland Products (Nutrien)	NTR:  NYSE	Agriculture inputs	US$29.65	18.84
Novozymes, A.S.	NZYM:  B.CO	Industrial chemicals	US$57.87	34.43
Nufarm Ltd.	NUF:  ASX	Agriculture inputs	US$2.46	16.00
Sanoway GmbH	Pvt.	Agriculture inputs	na	na
Solvay, S.A.	SOLB:  BR	Specialty chemicals	US$8.76	8.84

 

Valuation metrics in the soil amendment sector should provide a strong incentive to get involved.  Granted some of the highest multiples in this group are for operations with industrial chemical product lines.  Nonetheless, the presence of large players in the segment provides a strong endorsement for the value of the sector.  Smaller players in such an environment often become highly sought after acquisition targets, driving up values for even the smaller fry.

 

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.