By David Berman
There are 19 commodities in the Reuters/Jefferies CRB index, but wheat really stood out on Thursday, rising 7.6%. The gains, which sent wheat futures to two-year highs, came after fire-and-drought stricken Russia imposed a ban on wheat exports in an effort to conserve stockpiles.
While wheat may not be a go-to commodity for retail investors with small tracts of land, it is interesting to see agribusiness stocks leap into action. The gains just happen to coincide with Wednesday’s strong earnings from Agrium Inc. (AGU), the Canadian fertilizer company, which noted the remarkable rebound in potash demand. The shares rose 3.6 per cent on Wednesday and were up another 1.5 per cent on Thursday.
Last week, Potash Corp. of Saskatchewan Inc. (POT) said that the improving global economy would translate into rising food production and the need for more crop nutrients. Investors have heard that line before, but the Russian news appears to have underscored the need for more crops. The shares were up 2.8% on Thursday. Viterra Inc. (OTC:VTRAF) shares rose 6.4%. In the U.S., Monsanto Co. (MON) rose 3.3%.
Meanwhile, the Agribusiness exchange traded fund (MOO), which tracks the DAXglobal Agribusiness Index, rose 1.9%.
Joining the rally or selling into it is one of the tougher decisions you can make. For what it’s worth, John Redstone, an analyst at Desjardins Securities, downgraded his recommendation on Agrium to “hold” from “buy” while maintaining a $70 price target, citing the stock’s recent price appreciation. Agrium shares have risen more than 30% since the end of June.
However, keep in mind that agribusiness stocks are still well below their highs in 2008, when food-related stocks were all the rage amid fears of rice shortages. For example, Potash Corp. shares are still 52% below their 2008 highs while Monsanto shares are down 57%. It will be interesting to see whether concerns about wheat shortages resonate the way rice shortages once did.