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Agriculture: Notes from the Road

This article was originally published on ETFTrends.com.

By Ammar James, Analyst for VanEck Global

2020: A Key Year for the Agriculture Sector

Following record-breaking floods in the U.S. and a turbulent growing season in 2019, we remain optimistic about the outlook for the agribusiness sector in 2020. Bad weather in parts of the Midwest prevented farmers from wrapping up their 2019 harvests on time, with more than 10% of corn acreage still unharvested in states like Ohio, Michigan, and North Dakota as of December 1, according to the U.S. Department of Agriculture (USDA). Consequently, this should push out most fertilizer applications to the spring (2020). Furthermore, the fertilizer applications should be fairly sizable considering that the last robust applications happened in the spring of 2018.

We believe that this has implications for some of the well-known agribusiness companies, including the largest crop nutrient producer in the world, Nutrien. The company produces nitrogen, potash and phosphate fertilizers and has a competitive edge in the U.S. with its large retail distribution network. That, coupled with the company's mergers and acquisitions (M&A) pipeline for retail distributors in the U.S. and Brazil, gives us conviction that the company is well positioned heading into 2020.

Protein Power

As for crop prices, our conversations with farmers, agronomists and seed and fertilizer distributors point to flat corn and lower soybean prices in 2020 as more planted acres in the U.S., and aggressive seed pricing from mid-sized independent seed distributors, offset the positive effects from increasing global demand.

U.S. Soybean and Corn Production

U.S. Soybean and Corn Production


Source: VanEck, USDA, Bloomberg. Data as of November 2019.

These flat to low crop prices tend to spell good news for diversified protein producers, such as Tyson Foods, who utilize both corn and soybean as feed for chicken, cattle and hogs.

Lower feedstock prices, combined with the cascading effects of African Swine Fever in China/Southeast Asia and China’s lifting of its 2015 ban on U.S. poultry imports, should provide substantive tailwinds for protein producers in 2020. Though the impact of African Swine Fever is hard to quantify, China has accelerated its protein imports amid surging domestic pork prices. Likewise, the USDA forecasts that restored market access with China should allow U.S. poultry producers to export more than $1 billion worth of poultry products to the country annually (double the amount of poultry exports before the ban went into effect).

Conclusion

We believe that lower crop prices, shifting supply chains and reopened geographies present ample, albeit uneven, opportunities across the sector in 2020. Investors should take an active, measured approach.

DISCLOSURE

This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.

Please note that Van Eck Securities Corporation (an affiliated broker-dealer of Van Eck Associates Corporation) offers investments products that invest in the securities included in this commentary.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice.

Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third-party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this communication and are subject to change without notice. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Van Eck Associates Corporation or its subsidiaries to participate in any transactions in any companies mentioned herein. This content is published in the United States. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed herein.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.

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