Instead of going in depth with individual Agriculture related stocks I think I would rather try to illustrate the broad themes I see in the industry and a bi-weekly update would probably be often enough to stay on top of it. Honestly I think the rest of the market will probably drive price action for the Ag stocks irregardless of any fundamentals that exist within the space but provided crop prices remain relatively high there may be decent rebounds if these equities sell off. With that in mind these are the things I have been noticing as I go about managing my small farm and speaking with the producers I do business with.
Neutral to bullish grain prices: Usually this time of year is marked by a seasonal pull-back in most grain prices as the unknown becomes known. The industry usually has a pretty decent handle on the year’s yield by Nov/Dec and the market’s focus turns from more speculation to trading supply/demand. We have not seen a very large pull-back in prices this year which tends to be bullish going into the new calendar year. Multiple factors are playing into this: short-term weakening of the USD, China “re-opening”, drought in South America, and of course the continuing conflict in Eastern Europe. Worth watching: WASDE on January 12th, the last two years have seen large bullish moves in grain due to “surprises”.
10% increases for non-fertilizer crop inputs. Seed and chemical producers want their share of the higher crop prices. This trend has never not taken place when we see above average prices, this is just part of the business. Unfortunately on the equities side potential plays are somewhat limited for US markets: FMC and CTVA are the only trade-able companies that I can find. Please point others out if you see them! Bayer AG is a huge seed and chemical provider and may be a decent look for our European traders but the agricultural segment of the company is part of the conglomerate, so take care.
Ag Equipment: New and Used prices continue to remain high, especially for well cared for used equipment. Some of this is hangover from the supply chain headaches of the last few years and some of it is the higher grain prices allowing sellers to hold for the prices they want. DE, AGCO, and CNHI all remain at or near their all time highs. I think that even if grain prices fall the equipment manufactures may see continued strength until potential earnings misses.
Lower fertilizer prices due to lowered demand. Until this year Brazil has been an importer of fertilizer from the United States, this has seemed to shift as Brazil has developed closer ties with Russia through the BRICS geopolitical bloc. It will be interesting to see how/if this continues and what this does to CF, NTR, UAN, MOS and IPI. Theses companies may be the weakest part of the ag sector right now, all have see substantial pull backs in the last few weeks.
Thanks for reading my rambles and I will try to keep up with potential catalysts in the sector. Really everything hinges on grain prices remaining at or near these levels and I think it will take some time for prices to fall back to their pre-invasion ranges. As always play safe and good luck!
