Agriculture Stocks Could Sting - Citi

by: FP Trading Desk

Investors should be wary of agricultural stocks, with the recent run up in food prices drawing some parallels with the U.S. house price bubble,
Tobias Levkovich, chief U.S. equity strategist at Citigroup says.

“We remain skeptical about the agricultural theme and the various investment beneficiaries including seed company, farm machinery producer and fertilizer equities,” he said. “Investors have been stung of late in farm equipment and fertilizer stocks, but more pain could be coming even as raw material costs come down.”

Mr. Levkovich said the investment community has been enthralled with the notion of three billion new consumers adopting more protein-based diets as incomes rise. But he sees “significant cracks” in the agricultural economy story and believes there are some similarities between the unsustainable rise in U.S. house prices.

“Specifically, some of the excessive enthusiasm should raise alarm bells, not cheers,” he said. “In many respects, the patterns seem unsustainable and look somewhat more disconcerting than during the 1970s ag sector’s boom. We have been very anxious that investors had gotten carried away with the global growth theme and perceived it as an unending secular trend that was not subject to cycles.”