How to Capitalize on Agriculture's Move Up

Includes: ADM, BG, INGR, LNN, MOO
by: Jim Farrish

The agriculture stocks have been moving up aggressively since the end of June. The initial push came on the drought issues in Russia and wheat production. Then BHP started a hostile takeover bid for POT and the race was on. The buyout set a benchmark or valuation for the agri-chemical businesses. The corn crops in the US were below expectations and thus corn prices have moved higher. This all begs the question – is the run higher done? Is the risk of ownership in the sector too high? The bottom line is demand, and we all know that demand puts pressure on price and for now that demand is likely to remain.

MOO, Market Vectors Agribusiness's ETF offers a great opportunity to capitalize on the move in the sector. The fund focuses on the 40 most actively traded companies in the agriculture chemical and product business. The break above the January high technically shows the continued strength in the sector. The recent pullback near $48.50 is the kind of pullback we are looking for to add to our existing positions. Unfortunately, this only lasted one day. Watch and be patient for a clear point of entry.

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As stated, one approach to the sector is to hold MOO as it continues to move higher. Another approach is to dig into the ETF and track the the individual stocks offering the best opportunities both short and long term. The ETF holds 49 stocks both global and US. Scanning through the list shows opportunities that have continued to unfold.

Linday Corp (NYSE:LNN) is a producer of irrigation systems for the farmers. The stock was breaking from a long range cup last week and showing solid upside momentum. Wednesday it jumped 17% and hit our short term target on the stock. The challenge is finding a good entry point in these fast moving stock. You have to be patient and define your entry points, if you miss them pass and keep digging.

Bunge Limited (NYSE:BG) is a producer of food and food ingredients. The stock is breaking higher and ready to move toward the January high of $70. It is currently trading at the $60 to $61.50 range and barring a break down this is a good point to plan your entry.

Corn Products International (CPO) shows a cup and handle pattern and technically is ready to break higher above $39.80. They are in the food products business of manufacturing an distributing corn based goods.

Archer Daniels Midland (NYSE:ADM) has been consolidating near the highs at $33.60 and is ready to break higher as well. The increased talk around ethanol production in the US has helped the stock move higher. Watch for a clearly defined break higher short term.

It doesn’t take long to scan through the 49 stocks and find the opportunities. Define your entry, your exit/stop and your target. This allows you to determine the risk/reward relationship and define the objective relative to your portfolio. Remember, the sector has moved higher since the low in June and the best opportunities may be in the previous leaders which have pulled back, tested support and are poised to break higher. If you don’t like the research stocks, stick with MOO.

Disclosure: No positions