By Brad Zigler
In a recent
Gasoline Welcomes You To Winter
"), we celebrated the beginning of winter and marked the 200th
days, mind you) of the equity market low culminating the Great
Although the widely followed S&P 500 Composite was the
yardstick used to score the market's nadir, that doesn't mean that
every issue in the index bottomed on March 6. Take agribusiness
stocks, for example. Of the five biggest domestically traded
components of the DAXglobal Agribusiness Index-the benchmark
tracked by the
Market Vectors Agribusiness ETF (NYSE Arca: MOO)
-only one scraped its pan in March. The rest actually started
pulling up in late 2008, well ahead of the broader market.
Certainly, ag stocks have been on a tear this year. The Market
Vectors agribusiness portfolio headed into the Christmas trading
break with a 58 percent gain, nearly two and a half times the
run-up of the S&P 500:
Market Vectors Agribusiness ETF (
Underlying the ag sector's buoyancy are continuing concerns
about the impact on food prices from growing global populations.
The Food Price Index of the United Nations' Food and Agriculture
Organization has climbed relentlessly for months; in fact,
November's index reading was the highest since September 2008.
Aside from these supply/demand fundamentals, external factors
such as volatility in exchange rates and oil prices are also adding
an uncertainty premium to many agricultural commodity prices.
The Biggest Winners, Stock By Stock
Closer to home, market dynamics piqued investors' appetites for
agribusiness. As an example, let's look at the top five components
of the DAXglobal Agribusiness Index.
Mosaic Co. (
, a company that makes up 8.2 percent of the DAXglobal Agribusiness
Index. Mosaic produces and markets phosphate and potash fertilizers
and animal feed components. Demand for potash seems likely to
increase in 2010, as farmers replenish soils following two years of
Last week, shares of Mosaic (along with those of
Potash Corp. of Saskatchewan (
-but more on that later) were given a lift with upgrades by Goldman
Mosaic, now trading with a $60 handle, bottomed in November 2008
just under $22 and has now cleared the 24 percent retracement level
of its 2008 decline. Mosaic's price trajectory is shallower than
some of its competitors, indicating that share values haven't been
overextended. The technical balance point between "oversold" and
"overbought" conditions for Mosaic currently appears to be around
the $58 level. Just before Christmas, Mosaic shares were trading 21
percent above their 200-day moving average.
Another agrichemical component in the index is
Syngenta AG (
, a Swiss company that produces herbicides, genetically modified
seeds and pest-resistant specialty crops. The company also invests
in the development of amylase corn for use in ethanol production.
Syngenta accounts for 8 percent of the DAXglobal Agribusiness
Syngenta ADRs broke through the 62 percent retracement level of
their 2008 decline-they bottomed in October 2008-and are now
trading above $55, quite near their balance point. At current
levels, the receipts trade 19 percent ahead of their 200-day moving
Monsanto Co. (
is a genomics and agrichemicals outfit that comprises 7.9 percent
of the DAXglobal Agribusiness Index. The company develops strains
of corn, soybeans and cotton seeds, as well as vegetable and fruit
seeds that are sold to commercial growers, while its herbicide
operations market chemicals to commercial and residential
Since bottoming near $63 in November 2008, Monsanto shares have
struggled to maintain forward momentum. In fact, prices are now
lower than the levels attained in May, when a string of bullish
crop reports and trade data prompted buyers to bid up the stock to
the low $90s. The rally wasn't sustained, and prices eased back to
trade, for a good deal of the time, south of $80.
Monsanto shares now trade at their balance point near $82, just
3 percent above their 200-day moving average.
Potash Corp. of Saskatchewan (
produces and sells fertilizers and feed products throughout North
America, drawing potash from six mines in Saskatchewan and one in
New Brunswick. The DAXglobal Agribusiness Index allocates 7.5
percent of its capitalization to Potash.
Potash shares have been testing a 38 percent retracement of
their 2008 swoon, but haven't been able to sustain a break above
the $120 level. The stock remains oversold by about $4 a share at
the current $111 price range, though shares are trading 15 percent
above their 200-day moving average.
Finally, there's Illinois-based farm machinery maker
Deere & Co. (
known for its farm equipment as well as heavy equipment used in
construction, earthmoving and forestry. With a 4.8 percent
weighting, Deere is the largest machinery producer in the DAXglobal
Deere was one of the earliest ag stocks to top out back in April
2008. Share prices tumbled $70 by 2009's first quarter, but have
since regained more than 38 percent of their lost ground. The
stock's trajectory has been more volatile than the other ag stocks
we've examined, though. In July, the stock traded below its 200-day
moving average for about a week.
Deere stockholders who used that dip as a buying opportunity
were amply rewarded. The low point just below $35 was a launchpad
for a run that's taken Deere shares to their present level above
$56. The stock, now 29 percent above its 200-day moving average, is
actually overbought by a couple of bucks.
Top 5 Domestically Traded MOO Components
(Sharpe and Sortino ratios are both keyed to the 13-week
Treasury bill to aid comparison)
On the whole, the largest issues in the DAXglobal Agribusiness
Index have fared well this year. Only one-Monsanto-has posted a
negative Sortino ratio, an indication of its relatively flat
trajectory since last year's drawdown. Mosaic has cranked out the
best gain, but also is the most volatile issue in the group.
The best risk-adjusted return, however, could have been earned
the stocks in the DAXglobal Agribusiness Index. An investment in
the Market Vectors ETF carried a modest drawdown risk this year
while providing its market-bettering return.
The question now is whether these stocks-and, by extension, the
ETF-are likely to advance in 2010. Credit agencies are predicting
stability in the agribusiness sector as stocks continue to rebound
from recent earnings weakness. The momentum of agribusiness stocks,
however, could be slowed when the Fed finally begins to withdraw
Some traders and would-be ag investors, in fact, have already
noticed a waning impetus, at least in a relative sense. For most of
the year, the price of the Market Vectors fund shares has been
rising at a faster pace than those of the
PowerShares DB Agriculture Fund (NYSE Arca: DBA)
, an exchange-traded portfolio of 11 agricultural futures.
Recently, though, that momentum's been arrested.
MOO/DBA Price Ratio
Some of the under-performance of the DBA portfolio has been due
to the contango in its component markets, reflecting slack demand
and relative abundance in certain markets such as cattle and, until
recently, wheat. Should commodity supplies be compromised by
weather or external factors, futures curves could invert, boosting
returns within the DBA portfolio. Then, investors will be faced
with making the decision of whether ag stocks or futures represent
the best way to gain sector exposure.
We'll be keeping tabs on the relative strength of agribusiness
stocks throughout 2010, so stay tuned.
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