Market Vectors Agribusiness ETF Takes a Hit on UBS Downgrades

UBS Investment Research (UBS) downgraded two top agriculture companies Mosaic Co (MOS) and Potash Corp (POT) to Neutral from Buy on Friday. This comes after the Department of Agriculture says profits for U.S. farmers will plunge more than expected this year, dropping 38 percent from 2008 as the recession erodes demand for crops, livestock and dairy products.

These downgrades put pressure on the Market Vectors Agribusiness ETF (MOO) which holds top stakes in the two companies. The ETF (MOO) primarily invests in equity securities of U.S. and foreign companies primarily engaged in the business of agriculture. The ETF has enjoyed nice gains since its November 08 low.

We have included a list of the top holdings within the ETF:

TOP 10 HOLDINGS (MOO) ( 60.41% OF TOTAL ASSETS)

Company Symbol % Assets ARCHER DANIELS MDLND (ADM) 5.78 DEERE CO (DE) 4.85 Komatsu Ltd. N/A 4.55 Kubota Corporation N/A 4.54 MONSANTO COMPANY (MON) 6.08 POTASH CP SASKATCHEW (POT) 8.82 SYNGENTA AG ADS (SYT) 7.8 MOSAIC COMPANY (THE) (MOS) 7.6 Wilmar (F34.SI) 5.67 Yara International (YAR) 4.72

Here is a look at a what the ETF has done in the past year below:



Disclosure: No positions

Comments

[richjoy403:]

I read in the WSJ about the plight of farmers; and I am not surprised that reduced farm income would affect fertilizer sales, and thus the revenues of MOS, which I own.

However I am confused as to whether this is a temporary and mild reduction in MOS revenues, or a trend which signals sell? I note in particular that planting is expected to recover in the spring, and fertilizer demand is expected to increase.

I note that MOS has a large international business, has distribution facilities in 11 countries, and does business in many more. Also that people around the world are wanting to eat better, thus the need for more crop nutrients.

So, I ask other SA readers...do I wait out a temporary problem (meaning MOS will not fall much further from here ($49.80, and will recover within 8 or 10 weeks), or do I sell and move on?

Aug 30 11:13 AM

[buygolly:]

Richjoy.....
What is your time-frame for holding this stock ?
And would you be injured if MOS took a tumble ?
IMHO, Mosaic will trade much higher than $49.....eventually. I will not speculate, however, on when or how much. This company should be one of those that will always be here...and will likely trade in concert with the supply and demand of the worlds AG needs.(and those needs aren't going away)
My personal feeling, though, is that MOS will probably not go back to the price highs it saw in 2008 any time soon, if ever,even. Those prices were the result of momentum and speculative buying as traders looked for anything that was working while the general market trended down.
The current lull in demand, plus the downgrade, may push MOS lower from here. Who knows for sure?...I don't.
Your personal price goal for this stock, your time-frame, and your willingness to accept volatility should guide the next step.
Good luck to you...

Disclosure: I do not hold any ag stocks right now, but watching.

Aug 30 05:22 PM

[richjoy403:]

Buygolly -- thank you for a well-reasoned reply.

In answer to your questions, I have broad core positions, to which I add other stocks that I feel will add a bit of 'juice' to my returns (MOS is in the later group). For juice, I look mostly to energy and financials, plus a few positions in health care and emerging markets, and only MOS in AG.

I believe in flexibility, not rigid time frames. I am still 21% ahead on MOS, but will take my profits if I think my money is stalled for more than a couple months. It may not return to $150 in a year or two, but I do think it could do so in the next economic cycle -- fewer large fertilizer suppliers have a strong hold on supply, growing world populations need more food, and food prices will go higher because more world population is improving their diets. (Fertilizer demand will go still higher IF climate change is a real problem.)

In any event, what we saw in 2008 AG prices (and stock prices for companies providing fertilizers) may be only a preview of what is to come. I think MOS (or POT) is worth holding through a mild trough. I'm not trying to sell you, just providing an explanation.

Aug 31 07:04 AM

[platehead:]

They downgrade so they can buy, by instilling fear in other investors. Typical of their ilk.

Aug 31 08:02 AM

[mplaut:]

ISCHF (Israel Chemicals) is a company similar to MOS and POT but different in that it pays a respectable dividend making it less volatile and paying you to wait for the big ag boom.

Aug 31 11:27 AM

[richjoy403:]

thanks mplaut
I looked up ISCHF...insofar as I have determined, it is only available in the USA on 'pinksheets'. Frankly, for any stock's performance to make a dent in my portfolio I need to invest at least $25k. Pinksheet stocks are very volatile and (generally) trade in low volumes (which means it can be expensive to establish a position, and very difficult to sell at a fair price.

Sep 01 07:49 AM