HardAssetsInvestor

Written by Brad Zigler  |

April 17, 2009

Bunge Leads Agribusiness Breakout

Details

Thursday's equity market rally provided confirmation of the commodity stock breakout discussed in yesterday's Desktop piece ("The MOOve Toward Commodity Stocks").

The Market Vectors Agribusiness ETF (NYSE Arca: MOO) gained 22 cents to close at $30.95, while the GreenHaven Continuous Commodity Index ETF (NYSE Arca: GCC) finished at $22.20, a loss of 29 cents. The disparate closes ratcheted the MOO/GCC ratio to a new year-to-date high of 1.39.

One of the stocks leading the agribusiness sector higher was giant Bunge Ltd. (NYSE: BG), a New York-based outfit that makes up 3.9% of the Market Vectors portfolio. Thursday, Bunge climbed $1.71, or 3.1%, higher to finish at $57.63.

Bunge Ltd (BG) Vs. Market Vectors Agribusiness ETF (MOO)

Bunge's share price led agribusiness lower in 2008, plunging from $135 to the $27 level as earnings fell at a rate that left analysts astounded. The stock's been rangebound since November, but has recently moved into the lead again, this time on the upside. After clearing a critical retracement hurdle in March, Bunge shares are signaling that an interim stop at the $60 level may be on the itinerary on the way to a $74 objective.

The speed at which Bunge reaches these levels - more importantly, IF Bunge reaches these levels - depends upon the company's earnings. First-quarter numbers are set for release before the market opening on April 23. Bunge's last two earnings releases were stunningly awful. Street estimates for first-quarter profits – at $1.81 a share just three months ago – have since been pared back to 62 cents.

Given the earnings momentum of the past four quarters, analysts shouldn't be surprised if a loss as great as $1.43 were actually posted by Bunge.

EMA = exponential moving average

Traders in the options market seem to be more bullish in their Bunge bets. Thursday, July 75/50 strangles were traded at prices suggesting decreased volatility expectations for the stock. Historically, price volatility is higher in downtrending markets and lower in bull moves.

In a strangle, calls and puts with different strike prices are simultaneously purchased, or sold, on the same underlying stock. Traders selling the July strangle for a combined premium of $4.30 a share yesterday advertised their expectation that Bunge's price won't exceed $79.40 or dip below $45.70 over the next three months.

Plainly, the optionistas are giving Bunge more than a little room on the upside. The trade pattern on April 23 may tell us if that was a prescient move.