The Wall Street Journal
By MARK WHITEHOUSE, SCOTT KILMAN and ALEX FRANGOS
From corn to crude, prices for a wide range of commodities are on the rise across the globe, a trend that underscores -- but could also hinder -- a gathering economic recovery.
In recent months, global food prices have been growing at a rate that rivals some of the wildest months of 2008, when food riots erupted across the developing world. Higher prices could be a positive sign that companies are gearing up for a rebound in consumer spending, or the harbinger of a return to the upward spiral that plagued consumers before the recession took hold.
The surge in commodities "is a reflection of extremely strong demand in the emerging world, and growing hopes of stronger demand in the developed world," said Jim O'Neill, head of global economic research at Goldman Sachs in London. It is "encouraging so long as it isn't too persistent."
But Hugh Grant, chairman and chief executive of St. Louis crop-biotechnology company Monsanto Co., said the recession merely "masked" the 2008 food crisis.
The price of a bushel of corn -- a ubiquitous ingredient in the U.S. diet -- rose 24% since Sept. 1. In Thailand, the price of a metric ton of rice, a staple across the region, stood at $618 in December, up 11% from September, but well below a peak of about $1,000 in April 2008. An index of global food prices compiled by the United Nations jumped 6.9% in November alone from the month before.
What's in Store for the Fertilizer Industry?
by: Early Bird posted on: September 03, 2008 | about stocks: AGU / DBC / GSG / MOS / POT / RJA Font Size: PrintEmail After being an active trader in stocks related to the fertilizer industry for the past three years, I have recognized some interesting factors that have had a huge impact on the price movements of these companies' stock prices.
Since the stock price of listed companies in the fertilizer industry peaked in June, it has slumped by approximately 30%. In the same period, the fertilizer industry has experienced 15% higher prices for the fertilizer UREA (same for CAN, Amonia etc). With the fertilizer price booms, we also are watching the prices of oil and natural gas falling sharply, which means higher margins for the fertilizer producing companies. They are reaching all time high profits for their products. Why is this so? Why does the stock price of fertilizer companies fall when they experience higher prices for their products and better margins?
I believe one answer is the food prices ("of course", you might think, but few people care about it on a daily basis). You'll find a high correlation between the corn price (same for wheat, soybeans) and the stock price of i.e Agrium (AGU), Mosaic (MOS) and Potash (POT). It is important to watch the food prices closely. That is why the global sell-off in commodities has also hit fertilizer stocks hard.
In the long term, I believe that fundamentals will win, and last week's news about China hiking and expanding their export taxes on fertilizer will yet again boost international fertilizer prices and hence give better profit. It's a proof that the demand is still strong and supply is still insufficient
And, while the oil price keeps falling, I will keep on buying. Remember, lower oil and natural gas prices gives lower costs.
Demand, frost worries seen driving post-USDA report markets
No frost premiums in the market yet, analyst says
Agriculture Online News and Features Editor
8/12/2008, 10:04 AM CDT
Earlier this summer -- when floodwater covered thousands of acres in the Midwest -- some analysts expected as much as a 20% cut in this year's corn crop. But, farmers responded and the crop's made huge strides to catch up. Now, the crop is in a race to reach maturity before this fall's first frost.
Tuesday's USDA monthly Crop Production report contained many numbers that were hardly shocking. In fact, aside from a 155-bushel-per-acre estimate for this year's corn yields, most numbers fell into previous trade guess ranges. At first glance, 155-bushel corn might seem negative to the marketplace, but even at that clip, the crop would hardly overwhelm the demand that's building at home and abroad.
"When you take time to look through the numbers and what we have in the projected increase in demand, it suggests to me we're changing from a market totally focused on weather to one where demand is a very key factor," says Alan Kluis, president of Northland Commodities in Minneapolis, Minnesota. "I would not rule out corn closing higher considering other factors."
Given that AGU's current PE is well below historical PEs, and that one can only guess where the bottom is, I've been adding small blocks of shares as the stock has been heading down.
Indeed. Consider the following excerpt from today's Asia Times:
The first six months of the year saw the hedge-fund industry suffer its worst aggregate total return since specific statistics on this sector started to be kept in 1990. That was even before the gruesome month of July, when the long commodity stock/short financial stock strategy that many funds had been loading up on suffered a spectacular reversal after the government rescue of Fannie Mae and Freddie Mac in the middle of the month.
Many other hedge funds besides Legends are now closing their doors. Atticus Capital took a $5 billion pasting in July, Ospraie Management is shuttering its commodities fund, which has lost 40% in 2008 alone. In the interconnected working oligopoly that is modern finance, Ospraie's trials are casting a long shadow; with 20% of the firm owned by Lehman Brothers. It is the small domino of Ospraie leaning onto the big one of Lehman that has the market's focus fixing on Lehman to see if it is the next great house of money to place a phone call to the office furnishings auctioneer.
In the Frank Herbert science fiction series Dune, a class of humans called "Mentat" were specifically bred to be able to serve rulers with awesome and breathtaking feats of mental agility. Reading the financial press up to about a year ago, you might have thought that a spaceship full of Mentats had landed in hedge-fund central in Greenwich, Connecticut, to rule that business as a first step towards the conquest of the world.
We now know that nothing of the sort was happening. What we saw in the rise and current fall of the hedge-fund empires was just another example of Gresham's Law, that bad money drives out good. By allowing paper money to be debased through unregulated structured finance, the world's central bankers drove out the good money, stock certificates, and the actual physical goods represented by such, driving up their prices.
Gresham's Law is named after 16th century English financier Sir Thomas Gresham. In 1551, in the service of King Edward VI, Gresham stabilized the value of the pound, for which he received an annual grant of royal lands worth about 400 pounds. Hedge-fund managers received much much more, for delivering much much less.
Good point. Still, there aren't many companies reporting earnings and projections like Syngenta did yesterday, and there aren't many sectors with favorable outlooks either. I'm adding for the long haul.
Indeed, this is precisely the time to add to a long-term position of AGU. It may take some time, but the returns will be hard to match in other sectors.
Commodity Boom Just Getting Started, Says Longtime Bull Saut
Posted Aug 08, 2008 02:10pm EDT by Aaron Task in Investing, Commodities
Related: FCX, XLE, MOS, AGU, POT, DBC, GSG
With the dollar rallying and commodities slumping of late, a lot of folks have declared the commodity boom to be dead.
But "it's still the first or second inning" of the cycle, says Jeff Saut, chief investment strategist at Raymond James, citing a ratio of the CRB Index vs. the S&P and (more importantly) growth in emerging markets
Saut was one of the first on Wall Street to recognize the approaching boom, turning bullish on commodities and "stuff stocks" back in late 2001.
He reduced those bets - and corresponding bearish dollar positions - in late 2007 but still believes "the wind is still at the back" of not just oil, gas and coal but base metals, agriculture, timber i.e. Anything where "if you drop it on your foot it hurts," he says.
Ethanol demand could spark new bull market for corn
Tue Aug 12, 2008 1:36pm EDT
By Sam Nelson - Analysis
CHICAGO (Reuters) - The worst may be over for U.S. corn, the price of which has tumbled 36 percent from a record high six weeks ago, with some analysts expecting a bounce later this year as ethanol production continues to climb.
There are some expectations this year's crop could fall short of the forecast issued on Tuesday by the U.S. Agriculture Department, which said farmers could produce their second largest crop in history despite the worst floods in 15 years in the Midwest in June.
"The people I've spoken with, their views of the crop are certainly dramatically different than what these yields today say and what the conditions say ... they're much more cautious and much more conservative," Rich Feltes, director of research for MF Global, told a panel discussion on the USDA report.
USDA, in its August crop report, shocked the trade by pegging 2008 U.S. corn production at 12.3 billion bushels, the second largest ever and roughly 300 million bushels more than an average of analysts' estimates.
It also raised the average yield to 155 bushels per acre, up from 148.4 in July.
"It's important to note that most of that unexpected production gain was offset by higher demand and the fact USDA pegged ethanol demand at 4.1 billion bushels this year infers to me there will be at least 4.5 billion bushels for the 2009-10 campaign," Feltes said.
USDA raised by 150 million bushels, to 4.1 billion, its expected total of corn to be used to make the alternative fuel ethanol this year, a massive 33 percent of the crop.
That's a huge leap from only 3.0 billion bushels, or 23 percent, of last year's crop. The soaring demand for corn to make ethanol and shrinking stocks of soy are expected to lead to a bidding war for acreage next year.
"This was a beauty contest. NASS (National Agricultural Statistics Service) did not have much to count in terms of ears in terms of girth, we still aren't measuring test weight which in these kind of years, late planted flooded years, tends to be on the short side," said Dan Basse, president of AgResource Company.
The massive corn crop was forecast despite the worst flooding in 15 years in June in key corn states like Illinois and Iowa, slow early growth of the crop and one of the latest planting seasons in history.
Excessive wet weather in June was quickly replaced by greenhouse like growing conditions in July, leading to a steady increase in crop conditions and a big ratcheting up in estimated corn yields.
Corn prices have plunged nearly 36 percent in roughly six weeks from the record high $7.65 per bushel hit during the tail end of the flooding in late June, but analysts don't think corn prices will keep falling.
"Obviously the USDA has confirmed how nice the crop looks but in the final analysis we don't think the net yields can be that high," said Gavin Maguire, analyst for E Hedger.
He also said the marketplace has to contend with the "current distaste" for commodities by large speculators who are selling their holdings because of increased government oversight and investigations of big traders.
When the current spate of fund liquidation of commodity holdings ends, corn, soybean and wheat markets should begin a new march to higher price levels, led by soaring demand for food and fuel.
"People are heading for the exits right now and asking questions later and when this ends, grain prices should begin rising," Maguire said.
My take is that AGU will be considerably higher (e.g., above $72.) in two years. So, I'm adding when AGU is below $40., and I plan to hold until the economy has improved.
Thanks for the input, Rondhale. The CC for BG does indeed look favorable. It's notable that cash flow from operations increased from $134 to $2,210 during the current economic malaise.
The panic/forced selling of AGU makes it a good stock to buy/add. Q3 earnings should be in keeping with BG and SYT, and the report date is right around the corner.
Agrochemical Sector a Bright Spot in Slowing Global Economy
by: Research Recap October 22, 2008 | about stocks:
AGU / FMC / MON / MOS / POT / TRA
Agrochemical companies are expected to hold up better than the overall chemicals industry in the current global economic slowdown, with credit ratings remaining stable through the end of 2008 and 2009, according to Standard and Poor’s Ratings Services.
Thanks to continuing world population growth, improving standards of living, energy diversification into biofuels, and a cap on the amount of arable land available, the outlook for agrochemicals companies..remains favorable.
Record U.S. farm income is forecast for 2008, which should boost farmers’ purchasing power of fertilizer, as well as the latest state-of-the-art seed varieties. In addition, fertilizer prices should remain high because of tight supplies and strong demand globally, S and P said.
As a result, companies such as Monsanto Co. (MON) and Potash Corp. (POT) have seen their credit ratings upgraded in 2008, with the entire sector seeing S and P ratings improvements over the past 18 months.
Wheat Gains Most in 20 Years on Falling Shipping Rates, Dollar
By Tony C. Dreibus
Oct. 29 (Bloomberg) -- Wheat rose the most in at least 20 years on speculation demand will improve after ocean shipping rates dropped to the lowest in more than six years and the dollar fell, making U.S. grain cheaper for overseas buyers.