This year the U.S. Midwest is seeing the worst drought since 1956, sending corn prices soaring. In late June, I loaded up on the Teucrium Corn ETF (Nasdaq: CORN). Since then prices are up more than 20%.  

The severe weather conditions are wreaking havoc on corn crops. As a result, corn futures are trading near all-time highs and relief doesn’t seem close by. There’s little in the forecasts for rain in the Midwest, and the crisis seems to be spreading to the Northwest as well. This should further escalate corn and feed prices. But you as an investor can still get in on one of the best trading ideas of the year and collect a steady 8% dividend along the way.

For the past few years I have been bullish on fertilizer stocks like

CF Industries Holdings Inc. (NYSE: CF), Agrium (NYSE: AGU), Potash Corp (NYSE: POT), and The Mosaic Co. (NYSE: MOS) but one fertilizer stock stands ahead of the pack because it has a superior dividend and more growth potential.

There is a company that markets to the states of Illinois, Iowa and Wisconsin, which is one of the most attractive nitrogen fertilizer markets with strong and growing demand. In this market, ammonia usage has increased by 18% over the last five years alone. To meet demand, this market must rely on imports from other regions in the United States or from foreign countries. Best yet, the competition is very limited in this area with only two key players. The high barriers for the construction of new nitrogen fertilizer facilities should also provide future protection.

Record-low natural gas prices are a key reason why I like fertilizer stocks, because low prices have a positive effect on supply. One bushel of grain corn requires:

• 1.25 pounds of nitrogen

• 0.6 pounds of phosphate

• 1.4 pounds of potash

Firms with the highest nitrogen and potash exposure stand to reap the largest reward as corn yields fall. Investors looking to take advantage of low natural gas prices in the fertilizer sector should look for a company such as Rentech Nitrogen Partners (NYSE: RNF), which stand to see profit margins expand as natural gas prices are suppressed. Rentech Nitrogen Partners, L.P. is a pure-play nitrogen fertilizer company. Its facility can produce up to 830 tons of ammonia per day and is currently expanding to have the ability to produce 1,022 tons per day. 

Take a look at Rentech since last November…

With the United States being the third-largest market for nitrogen fertilizers globally, it depends on European nitrogen fertilizer producers. From 1999 to 2009, more than 50% of supply came from Europe. But with natural gas prices being much lower, it allows U.S. companies like Rentech to thrive. 

#-ad_banner-#Rentech’s prime location in East Dubuque, Illinois allows it to realize higher average sales prices per ton of ammonia, net of transportation costs, than its publicly-traded competitors. Competitors have to factor in larger transportation costs and often lose he pricing battle. Additionally, Rentech’s location among the highest corn-producing states allows it to sell a substantial portion of its nitrogen products into the higher-priced agricultural market, whereas many of its competitors must focus instead on the lower-priced industrial market.

Another advantage of Rentech’s location is its ability to sell more of its ammonia during application seasons. It can take advantage of two applications instead of one. Customers in the Mid Corn Belt typically experience two application seasons for ammonia every year: one in the spring and one in the fall. As a result, customers are typically willing to pay premium prices for Rentech’s nitrogen products during application seasons, allowing it to maximize sales during these peak periods. 

Rentech is located a mile from the Northern Natural Gas Pipeline, an interstate natural gas pipeline system, which gives it the flexibility to purchase natural gas from different regions in North America and from several major natural gas suppliers. Because it sources all of its natural gas feedstock requirements from sellers in North America, it is able to beat pricing from European nitrogen fertilizer producers, which typically pay higher natural gas and transportation prices to service the North American market. 

Risks to Consider: If natural gas prices rise, it could affect profitability. Additionally, materials/commodity-based stocks like Rentech can see higher amounts of volatility and price sensitivity. Because Rentech serves such a focused niche, it is exposed to the ups and downs of the local economy and market.

Action to Take –> Buy Rentech up to $32 a share. The current dividend is about 8.4%, and this dividend could soar. The company just announced its first cash distribution of $1.06 per share, exceeding the prediction of $0.90-$1.00. Rentech Nitrogen is well positioned to exceed its forecast of cash available for distribution of $2.34 per common unit. This stock could easily soar into the $40s.

P.S. — Soaring corn prices are just one of 11 shocking predictions StreetAuthority’s Andy Obermueller recently made to readers of his Game-Changing Stocks newsletter. To find out the rest of his predictions — and how you can profit — read this special report.