67 WALL STREET, New York - May 1, 2014 - The Wall Street Transcript has just published its Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Small Cap Investing - Value Investment - Investment Risk Management Strategies - Long-Term Investing - High-Quality Companies - Investing in Agriculture - International Microcap Investing - Low-Volatility Investing
Companies include: Monsanto Co. (MON), CF Industries Holdings, Inc. (CF), Potash Corp. of Saskatchewan, (POT), Mosaic Co. (MOS), Syngenta AG (SYT), Tyson Foods Inc. (TSN), Sanderson Farms Inc. (SAFM), Archer-Daniels-Midland Co. (ADM), Deere & Co. (DE), AGCO Corp. (AGCO), McDonald's Corp. (MCD), EI DuPont de Nemours & Co. (DD), Yum! Brands Inc. (YUM) and many others.
In the following excerpt from the Investing Strategies Report, a professional portfolio manager specializing in the agricultural value chain discusses his methodology for stock selection:
TWST: Can you give specific examples of some of the Fund's holdings that can benefit from the different environments?
Mr. Agbabian: Let's say the price of corn is going up. Right now corn is roughly $4.80; let's say it was $7 or $8 last year. Farmers would have a supply response to the high price of corn by increasing the amount of acres planted, increasing their productivity to get the most production per acre to take advantage of the really favorable prices.
They may want to use the best seeds; they could buy that from Monsanto (MON), for example. They would want to apply the optimal mix of fertilizer that helps them. There are three different fertilizer nutrients, so they'll buy more nitrogen fertilizer produced by CF Industries (CF), and they'll buy more potash and phosphate fertilizer produced by Potash Corporation (POT) or Mosaic (MOS).
They may buy the best farm equipment. They may have disposable income to buy the latest and greatest tractor, the best combine harvester, equipment that helps them optimize planting the harvest or apply crop-protection chemicals. A company like Syngenta (SYT) from Switzerland may benefit; they are the leading crop-protection chemical company globally.
So in that type of environment, farmers need to maximize their productivity or their yield per acre, and in order to do that they have the incentive to spend the extra money on these types of inputs. So a fertilizer company could then charge a higher price because demand is higher than supply; farmers are willing to pay the higher price because it's economical for them to do so.
In that type of scenario, the downstream companies could be hurt. So companies that produce let's say chicken - companies like Tyson Food (TSN), Sanderson Farms (SAFM), Pilgrim's Pride (PPC) - may be squeezed on their costs. Their profit margins would be squeezed because they're paying a higher price for feed. Maybe 65% of the feed that goes into a chicken is corn, and the other 28% to 30% is soybean meal. The feed costs would be higher, and that in turn would be a negative factor for those chicken producers.
What we've had in the last year is a supply response on the grain and oilseed side, where farmers had increased the amount of acres planted. Last year they increased to around 95 million acres of corn planted...
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.