HardAssetsInvestor

Written by Brad Zigler  |

December 28, 2009

More Gains For Ag Stocks In 2010?

Details

As 2009 draws to a close, we take a second look at the year's best-performing ag stocks.

• Why ag stocks missed out on 2009's equity market low
• Which ag stocks have outperformed this year
• Could DBA outperform MOO in 2010?

 

In a recent Desktop article ("Gasoline Welcomes You To Winter"), we celebrated the beginning of winter and marked the 200th anniversary (that's 200 days, mind you) of the equity market low culminating the Great De-leveraging.

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 (MOO)

 

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.

First, take Mosaic Co. (NYSE: MOS), 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 limited applications.

Last week, shares of Mosaic (along with those of Potash Corp. of Saskatchewan (NYSE: POT)—but more on that later) were given a lift with upgrades by Goldman Sachs research.

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 (NYSE:SYT), 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 Index.

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 average.