Agribusiness Outshines Gold

Repeat after me: “All that glitters isn’t gold.” Sometimes it’s potash. Or phosphate. Or one of many other products mined, processed or distributed to farmers and ranchers.

Agribusiness, in fact, has been outshining gold over the past year, cranking out twice the yellow metal’s appreciation. A year ago, gold’s price was fixed by London dealers at $623 an ounce. On Monday, an ounce of bullion fetched more than $803. Holding gold, before costs, would have afforded an investor a nearly 2 % gain for the year.

Not bad. Especially in light of the contemporaneous, and tepid, 4% gain notched by domestic blue-chip stocks.

The DAXglobal Agribusiness Index (DXAG)—a benchmark 37 stocks wide—grew 66% in the past 12 months alone. DXAG is maintained by Germany’s Deutsche Boerse, and represents a cross section of global companies involved in agrichemical and biofuel production as well as livestock, grain and oilseed operations. Equipment manufacturing also figures prominently in the DXAG mix.

Increasing demand for farm products from consumers and industry has translated into revenue growth for agrichemical companies such as Monsanto Corp. (MON), Mosaic Co. (MOS) and Potash Corp (POT). Mosaic’s NYSE-listed share price has tripled over the past year as a result.

Likewise, inventories of farm equipment from Deere Co. (DE) and Komatsu Ltd. (KMTUF) are being worked off. A near-doubling of Deere Co.’s stock price occurred in the past year.

The ascent in the stock price of producer Bunge Ltd. was recently chronicled in a HardAssetsInvestor.com commentary (see “I Wanna Be A Producer,” HAI News and Views, October 31, 2007).

Currency rates and U.S. trade policy are at the index’s back, too. Repatriating foreign sales into greenbacks has boosted profits of some U.S.-based component companies.

(More information on the DXAG index can be found at the Deutsche Boerse Web site).

Click on the chart for a sharper image

Many speculators are being warned about the frothiness of the gold market. “What goes up must come down,” say old hands who’ve lived through commodity market cycles before. But what of commodity equity prices? Will agribusiness company stocks peak with gold?

There are no hard-and-fast rules to follow. In fact, George Bernard Shaw’s dictum says we shouldn’t even look for them: “The golden rule is that there are no golden rules.”

Stay tuned.

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You can follow agribusiness with the MOO ETF. Its up 18% since inception in September