Commodity producers have seen choppy trading so far this year
due to subdued global trends and commodity-specific risks. This is
also true for the agribusiness market, and especially so
in the fertilizer segment.
The agribusiness market is bearing the brunt of lower prices for
chemicals, such as potash, urea and sulphur, used in fertilizers.
The downtrend can be traced to sluggish global demand and a supply
glut, uncertainties in the potash market, and low crop prices due
to a longer planting season (read:
Inside the Recent Plunge in the Corn ETF
Additionally, dismal performance by the fertilizer segment and
falling earnings estimates across the space have added to the
plight of the industry, which has been pushed way down in terms of
Zacks Industry Rank
. In fact, share prices of some of the top players such as Potash
Corporation of Saskatchewan (
), Mosaic (
) and Agrium (
) have faced a significant amount of trouble since summer.
This corner of the market continues to deteriorate due to weakening
potash fundamentals as we head toward the end of the year.
Potash Price in Focus
Potash prices have been declining since midsummer when the Russian
producer Uralkali ended the partnership with the Belarusian company
Belaruskali. This trend in prices will likely continue in the near
term as Uralkali has decided to raise potash production by 3.5
million tons by 2014 by expanding its capacity to the optimum
level. This increased production would lead to an oversupply
condition in the global market.
Further, the demand for potash remained weak in India, the fourth
largest potash consumer after the U.S., China and Brazil, thanks to
their weakening currency. The Indian rupee plunged 15% since the
start of the year.
As if this wasn't enough, the space is also having to deal with
reduced projections for potash prices and sales this year due to
the break-up of the potash cartel (read:
Agribusiness ETFs in Trouble as Potash Cartel
Falling potash prices are hurting producers across the globe,
leading to lower revenues, and in turn hampering margins.
Though the demand/supply imbalance would continue to put pressure
on fertilizer prices in the short term, the long-term fundamentals
look promising. This is especially true given the ever-expanding
world population that would lead to higher consumption of
fertilizers in order to meet the growing food demand.
As such, the companies in the agribusiness industries such as
manufacturers of seeds and fertilizers, and farm-machineries will
benefit from booming demand (read:
3 ETFs for Insatiable Global Food Demand
ETFs to Consider
With that being said, long-term investors could definitely benefit
from the current weakening trends for potash. While investing in
fertilizer producers is certainly an option, there are a couple of
agribusiness ETFs that provide a nice play in the beaten down
fertilizer segment with much lower risk.
The Global X Fertilizers/Potash ETF (
This fund provides a great deal of exposure to the in-focus segment
by tracking the Solactive Global Fertilizers/Potash Index. The ETF
holds about 22 securities and includes the largest and most liquid
global firms that are active in some aspects of the fertilizer
all the Materials ETFs here
The product is spread out across securities as none of them holds
more than 6.6% share in the basket. Large caps constitute about 44%
of the total assets, while mid caps make up for 27% and the rest
goes to small caps. Country exposure is tilted toward the U.S. with
26% while Australia, China, Canada, and Israel also make up for a
decent allocation of 10% each.
The fund has amassed $22.8 million in its asset base while trades
in light volume, suggesting additional cost of trading beyond the
expense ratio of 0.69%. SOIL is down 17% year-to-date.
PowerShares Global Agriculture Fund (
This product provides global exposure to companies engaged in
agriculture and farming-related activities. It follows the Nasdaq
OMX Global Agriculture Index and has $91.4 million in AUM while
trades in paltry volumes. PAGG charges 75 bps in fees per year.
Holding 47 securities, the fund is concentrated on the top three
firms - POT, MOS and Syngenta - with 8% share each. U.S. firms
dominate the fund's return with 40% of assets, followed by Canada
(12%) and Switzerland (8%). The product is tilted toward the large
cap at 77% while mid and small caps take the remaining portion in
From an industry perspective, about three-fifths of the portfolio
is allocated to agricultural chemicals like potash and fertilizer,
while farming/fishing make up for the rest. The ETF lost nearly
6.4% in the year-to-date time frame.
Market Vectors Agribusiness ETF (
This fund tracks the DAXglobal Agribusiness Index and provides
exposure to companies that derive at least 50% of their revenues
from the agricultural business. In total, the fund holds 50
securities with largest share going toward Syngenta (8.34%),
Monsanto (8.27%) and Deere & Co (6.93%).
In terms of country allocations, U.S. (48%), Canada (10.6%) and
Singapore (8.3%) occupy the top spots. The product provides nice
diversification across business segments with agricultural
chemicals accounting for 44% share while farming/fishing stocks
(20%), and industrial engineering (16%) rounding out the next two
spots (see more in the
MOO is by far the most popular and liquid choice in the space with
AUM of over $4.6 billion and average daily volume of more than
378,000 shares. The ETF is one of the low cost choices in this
space, charging 55 bps in annual fees. The fund is down roughly
2.8% so far this year.
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AGRIUM INC (AGU): Free Stock Analysis Report
MKT VEC-AGRIBUS (MOO): ETF Research Reports
MOSAIC CO/THE (MOS): Free Stock Analysis Report
PWRSH-GLBL AGRI (PAGG): ETF Research Reports
POTASH SASK (POT): Free Stock Analysis Report
GLBL-X FERT/POT (SOIL): ETF Research Reports
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