To say the market is getting its head handed to it is the understatement of the year. We’re 16 days into the New Year, and our metric for the remainder of the year (January) is already on life support.
After plunging more than 800 points since late December, the Dow is a mess, as is the broader market. Recessionary fears, presidential election uncertainty, poor retail numbers, multibillion-dollar bank write-downs, rising unemployment: you name it and it’s crushing the market, and is likely to send us to 12,400 before a brief Fed rate cut rally.
But despite the sell-off, agricultural stocks are holding up well. That’s thanks to the USDA’s World Ag Supply and Demand Estimates January report, which just confirmed strong demand for a wide variety of grains. Here’s a piece of that report:
According to Briefing.com, “Corn production expectations were lowered to 13.074 bln, down from 13.168 bln in December. Ending corn stocks (inventory) declined 359 mln bushels to 1.438 bln, down from 1.797 bln bu, and the yield was lowered to 151.1, down from 153.0. Corn use for ethanol production was unchanged at 3.2 bln, while the projected price of corn was raised $0.35 on each end to $3.70–4.30, up from $3.35–3.95.
“Wheat production expectations were unchanged at 2.067 bln bu. Ending wheat stocks were raised 12 mln bushels to 292, up from 280 mln, and yields were unchanged at 40.5 bu per acre. The projected price range for wheat increased $0.25 on each end to $6.45–6.85, up from $6.20–6.60.
“Soybeans production expectations were slightly lowered to 2.585 bln, down from 2.594 bln bu, ending soybean stocks were lowered 10 mln bu to 175 mln, down from 185 mln and the yield slightly lowered to 41.2, down from 41.3 bu per acre. The projected price range for soybeans was significantly raised to $9.90–10.90, up from $9.25–10.25. The changes in corn results were most likely not entirely anticipated, especially the decline in ending stocks, and this report is likely to create more volatility in corn trading than expected.
“Overall, this report is bullish for agriculture equipment manufacturers, fertilizer and seed stocks, and bearish for ethanol stocks and livestock stocks.”
That news alone is a boon for the likes of Monsanto (MON:NYSE) and small-cap favorite Origin Agritech (SEED:NASDAQ), which has exposure to China, where key grain supplies are tightening, including corn and soybeans.
Demand for food is greatly outpacing supply, which has already jetted food inflation. And with global populations on the rise, demand will only grow, making those inflationary fears even worse. We’ve already seen wheat and soybean prices, for example, rise about 80 percent over 2007 alone, as corn hit an eleven-year high.
The agro boom has only just begun. You just have to pick up the smaller agro-related stocks, like Origin Agritech (SEED:NASDAQ), early and cheaply enough for the remainder of the run.