Sifting Through the Holdings of New IQ Global Agribusiness Small Cap ETF

by: Alex B. Gray

The IQ Global Agribusiness Small Cap ETF (NYSEARCA:CROP) was launched on March 22, 2011. The ETF is designed to track the IQ Global Agribusiness Small Cap Index. According to the issuer, IndexIQ, the index provides important exposure to global small cap companies engaged in the agribusiness sector, including crop production and farming, livestock operations, agricultural supplies and logistics, agricultural machinery, agricultural chemicals, and biofuels.

Many of the companies included in this index either do not trade in the U.S. or are thinly traded in the Pink Sheets. Therefore, the ETF could provide an opportunity for an investor looking for international exposure in the small cap agricultural space.

Below I summarize the operations of a few of the ETF's holdings that trade in the U.S. for those who may be looking for investment ideas outside of the ETF.

3 Largest Holdings

Viterra, Inc. (OTC:VTRAF) is the largest holding in the ETF making up 9.3%. Viterra is a Canadian company with operations in agri-products, grain handling & marketing and the processing of oat, canola and malt. The agri-products operation provides farmers with seed, fertilizer, crop protection products equipment and expert agronomic advice through a network of retail locations across Canada. The grain handling and marketing operation has operations in Canada, the United States, Australia and New Zealand. Viterra is the largest grain exporter in Canada and is a major exporter in Australia. The company's large network of elevators and port facilities have enabled it to create a strong competitive advantage. The processing operation includes the processing of oats, wheat and canola in North America along with malt processing in Canada and Australia and is the third largest pasta manufacturer and marketer in North America. The company also provides animal feed products to the livestock industry.

Tractor Supply Company (NASDAQ:TSCO) is the second largest holding in the ETF at 8.54%. Tractor Supply is the largest operator of farm and ranch retail stores in the United States with over 1000 locations. Through this network of retail stores, the company markets farm and general maintenance products, lawn and garden products, animal care, work apparel, and automotive accessories. The company recorded record sales in 2010 of 3.64 billion with comparable store sales rising 7%. The company plans to open 80-85 new stores in 2011 and expects sales to exceed $4 billion. The company initiated a quarterly dividend of $0.07 per share in February 2011.

Smithfield Foods, Inc. (NYSE:SFD) is the third largest holding at 7.97%. Smithfield is the largest hog producer and pork processor in the world and the number one U.S. packaged pork company. The Smithfield produces and markets a variety of fresh and packaged meat products worldwide. The pork processing segment accounts for 71% of revenues with hog production and international accounting for 19% and 9% respectively. The company has several leading retail brands including Eckrich, Armour, Farmland, Smithfield, John Morrell, Kretschmar and other recognized brands. In addition, the company markets specialty products under labels such as The Peanut Shop of Williamsburg, The Paula Deen Collection, Basse's Choice and other Smithfield brands.

Other Holdings of Interest

Graincorp Ltd. (OTCPK:GRCLF) provides for storage, handling, trading and the exporting of grain in Australia. The company has more than 250 elevators throughout Australia with a storage capacity of 20 million tons. Graincorp also operates 7 export terminals. The company is the fourth largest commercial malt producer in the world and has operations in Australia, Canada, Britain and the United States. In addition, the company owns 60% of Allied Mills which is Australia's largest supplier of flour and bakery pre-mixes.

The Andersons, Inc (NASDAQ:ANDE) has operations in five distinct areas which include grain and ethanol, railcar leasing and repair, plant nutrients, turf products and retailing. The grain and ethanol group operates grain terminals in five Midwest states in the U.S. and three ethanol plants in Indiana, Michigan and Ohio. The rail group is involved in the repair, management and leasing of railcars and locomotives. The company has eight repair facilities across the U.S. The plant nutrient group formulates and distributes plant nutrients through 17 agricultural nutrient facilities, 3 pelletized products facilities and 10 farm centers in 7 states and Puerto Rico. The turf and specialty group produces turf care products for the home, golf course and professional lawn care markets. The retail group operates 5 home stores, a specialty food store and a mower center all in Ohio.

Cosan Ltd. (NYSE:CZZ) is based in Brazil and is the largest grower and processor of sugarcane in the world. The company's sugarcane is planted across over 1.4 million acres of which 50% is leased, 40% is supplier owned and 10% is owned by the company. As the operator of 17 mills and 2 refineries, Cosan is the largest producer of sugar in Brazil and on one the largest in the world. The company is also the largest producer of ethanol in Brazil and the second largest in the world.

Chaoda Modern Agriculture (OTCPK:CMGHF) is a large producer of fruits and vegetables in China with 34 production bases in 13 different Chinese provinces. The company also grows rice, processes mushrooms, breeds livestock and supplies frozen fruits and vegetables to buyers in Europe, North America, Japan and the Middle East.

Chaoda is a much more controversial than the others mentioned in this article. The controversy stems from the validity of the company's reporting to investors. This is becoming a common theme among companies doing business in China. I have not yet performed the research necessary to form my own of opinion and I would certainly recommend you do your own thorough research prior to committing capital. If you are interested in learning more about this company, a good place to start would be a well written article by Clemens Scholl titled Chaoda Modern Agriculture: A Green Giant for the Price of a Dwarf?.

More on choosing the right ETF

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.