My picks to play the mounting demand for soft commodities is as follows: Market Vectors Agribusiness ETF (MOO), Intrepid Potash (IPI), The Mosaic Company (MOS), Monsanto Co. (MON), DuPont (DD), CF Industries (CF) and Caterpillar Inc. (CAT).
These seven agricultural equities have been steeply sold off this year based on a vortex of volatility brought on by a slew of incessant negative macroeconomic headlines from the eurozone, Middle East, China, Japan, emerging markets and Main Street USA regarding the ever-present deleterious unemployment picture. Ironically, none of the building blocks of the so called "Wall of Worry" have altered the underlying dynamics of the current global food crisis that will give rise to a major upswing in the value of these names.
Major Macro Agricultural Catalysts
Food Prices Remain High and Volatile
According to a recent report by the World Bank Group's Global Food Crisis Response Program ((OTCPK:GFRP) global food prices remain volatile. The following is a short excerpt of the report titled, Food Prices Remain High, Volatile.
Global food prices remain high and volatile even though the average global Food Price Index did not change between July and September. Domestic food prices also remained volatile in the same period. But domestic price volatility does not follow a clear pattern, making it difficult to predict the direction of future domestic prices.
Exponential Population Explosion
The world's population recently surpassed seven billion people for the first time this October according to a recent report in the USA Today. Please review the following short excerpt:
Global population has swelled in record time since 1987, when it hit 5 billion. "Currently, world population is growing at the most rapid pace in history," says Carl Haub, a demographer at the Population Reference Bureau. "In 1900, we were at 1.6 billion. In 99 years, we flipped the numbers to 6.1 billion.
Tight Global Inventory Levels
Depressed yields of major agricultural crops have led to tight inventory levels. Corn stockpiles are at 30 years lows. We have low stocks of corn not only in the U.S., but the world as well. A majority of the corn supply in the U.S. goes to ethanol while China has emerged as a significant buyer in 2011 for the first time. The South American soybean market is tight. The recent dry conditions in Brazil could exacerbate the issue further.
Potential for Snowballing Inflation
The FOMC minutes for the two-day November meeting suggest that under current economic circumstances the Federal Reserve may engage in a third round of quantitative easing. The solution to the eurozone's sovereign debt issues have led to the euro printing presses being cranked up, allowing them to paper their way out of the problem, which will only devalue the currencies and spur soft commodity prices even higher.
Arrival Of New Emerging Market Middle Class Improved Diet Demands
The newly burgeoning middle classes of India and China desire an enhancement to their current diets. One consequence of economic growth in emerging countries is the in the rise of a new middle class. As the standard of living increases a change in diet takes place. A shift from staple foods such as rice or wheat to animal protein coupled with fruits and vegetables takes place almost immediately. The OECD (Organization for Economic Cooperation and Development) looked at the future evolution of the respective shares of consumption by the middle class, between different regions of the world. Their study was for consumption goods at large. Please review this amazing graph.
Please review the following list of potential current company specific catalysts follow by a chart detailing each company's current fundamental statistics.
Company-Specific Catalysts and Fundamental Statistics
The Market Vectors Agribusiness ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the DAXglobal Agribusiness Index. The fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the business of agriculture, which derive at least 50% of their total revenues from agribusiness. Such companies may include small- and medium-capitalization companies. It is non-diversified.
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Intrepid Potash, Inc. recently announced third quarter 2011 financial results, with quarterly net income of $25.5 million and $0.34 of earnings per diluted share. These results included the recognition of $0.03 per diluted share of income, net of tax, associated with recording an estimated additional refundable employment-related credit from the State of New Mexico. Adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA1) for the third quarter of 2011 were $51.0 million.
The Mosaic Company recently announced it has reached a settlement with Potash Corporation of Saskatchewan Inc. ("PCS") regarding the parties' dispute over the obligations of Mosaic's wholly-owned subsidiary, Mosaic Potash Esterhazy Limited Partnership, to supply potash from its Esterhazy mine to PCS pursuant to a tolling agreement which began in 1978. The parties were scheduled to begin trial before the Queen's Bench Judicial Centre of Saskatoon, Saskatchewan in January 2012. The settlement will resolve the tolling agreement dispute in its entirety, cancel the scheduled trial and dismiss the claim of PCS and the counterclaim of Mosaic.
Jim Prokopanko, Mosaic's president and CEO said:
We are pleased to reach agreement with PCS on termination of toll production for PCS at our Esterhazy mine, the world's largest potash mine. This settlement provides certainty to our investors around the timing of this agreement and allows our customers access to this additional inventory. The reversion of these potash tonnes, including an adjustment of our Canpotex entitlement, along with our previously announced expansion efforts, will increase our annual potash production capacity to over 16 million tonnes by 2021.
Great news for Monsanto, in more than 8,000 comparisons in 2011, Asgrow® Genuity® Roundup Ready 2 Yield® soybeans outyielded competitive products by 4.5 bushels per acre with a 79 percent win rate.* The same consistent, high-yielding Asgrow performance is available to farmers in 2012 in the form of 30 new products featuring the latest Genuity Roundup Ready 2 Yield technology.
Fabrice Houdebert, Asgrow Marketing Manager says:
The Asgrow Performance System is designed to help farmers take more bushels to the bin. A big part of that system is choosing the best genetics for your field, and Asgrow has made significant investments in our breeding program to bring the best varieties with the best defensive packages. For 2012, the Asgrow team believes it has an outstanding lineup of new varieties for farmers across all maturity groups.
An arbitration panel has ruled in favor of DuPont in a dispute filed by Monsanto in May 2009. In the arbitration, Monsanto alleged that DuPont business Pioneer Hi‑Bred's PROaccess(SM) genetics distribution relationships breached Pioneer's Roundup Ready® corn and soybean licenses with Monsanto. The arbitrators' ruling denied Monsanto's claims for damages and for injunctive relief. The written decision is confidential.
CF Industries Holdings, Inc. recently reported record third quarter 2011 net earnings attributable to common stockholders of $330.9 million, or $4.73 per diluted share, compared to $48.2 million, or $0.67 per diluted share, in the third quarter of 2010. Third quarter results included a $35.1 million impairment charge due to the permanent shutdown and removal of the methanol plant at the company's Woodward, Oklahoma, nitrogen complex and a $14.1 million non-cash mark-to-market loss on natural gas derivatives, which reduced after-tax earnings per diluted share by $0.31 and $0.12, respectively. Third quarter 2010 results included a $25.7 million non-cash mark-to-market loss on natural gas derivatives and $22.8 million of business combination and integration costs.
The Board of Directors of Caterpillar Inc. voted recently to maintain the quarterly cash dividend of forty-six ($0.46) cents per share of common stock, payable February 18, 2012, to stockholders of record at the close of business, January 20, 2012.
Caterpillar Chairman and Chief Executive Officer Doug Oberhelman said:
As we come to the close of 2011, I am pleased with Caterpillar's strong and steady performance during a year that has had many ups and downs in the global economy. In this environment, we have continued to increase wealth for our stockholders, while strengthening our financial position and improving cash flow. At the same time, we have announced a series of key investments to position Caterpillar for long-term growth.
For 18 years in a row, Caterpillar has paid higher dividends to its stockholders, and since 1998, the company's cash dividend has more than tripled. Including the announcement recently, Caterpillar has paid a cash dividend every year since the company was formed in 1925 and has paid a dividend every quarter since November 1933.
Oberhelman reaffirmed Caterpillar's outlook stating:
Across the company this year, we have remained focused on our objectives and that gives us confidence in our ability to deliver on our business goals for 2011. Combined with our belief in our 2015 strategic plan, today we are reaffirming our outlook.
In spite of all these positive developments, the sector has been in a downward spiral during the second half of 2011 leaving some names down as much as fifty percent. According to the chartist, the current correction is healthy technically. We saw an inkling of positivity in the headlines out of Europe last week regarding the eurozone sovereign debt crisis as well as positive news regarding the U.S. unemployment situation. Taking these factors into account, I posit agricultural equities will soon soar from their current shares prices based on macroeconomic, sector and company specific catalysts. This could be your last chance to pick up these stocks at this level if things continue to improve. You can't reap what you don't sew, now is the time to buy these agricultural equities at their lows.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MOO, MON, DD, IPI, CAT, MOS, CF over the next 72 hours.