Agricultural
commodities can be strong in both the short and long run, and are
currently being driven by a rash of bad weather. This comes as a stark
contrast to the likes of base and precious metals, which are relying
heavily on QE3. Corn and soybean prices, as well as other commodities,
have spiked due to a record drought, and forecasts look bleak for the
remainder of the year. If the drought persists into 2013, supplies will
remain strained, and prices could go even higher. The S&P GSCI
Agriculture Commodity Index is up 18% year to date.
For fiscal
year 2012, the USDA projects U.S. agricultural exports to decline 1%
from 2011, and imports to be up as much as 13%; resulting in a decline
of 30% in the favorable trade balance in 2012, to $30 billion.
Rebound from the current stressed agricultural commodity environment will come from agribusiness capacity utilization level improvement, driven by world population growth, namely demand from Asian and Latin American countries. As a result, we believe some funds are taking initiatives to capitalize on the recent weather and agricultural commodity outlook, while some are looking to limit exposure to other companies.
The
moves we have identified, made by funds, cover various aspects of the
agriculture business and range from actual storing and processing of
commodities to the seeds that grow commodities.
Archer Daniels
Midland Company (NYSE:ADM) is engaged in procuring, processing and
merchandising agricultural commodities and products to nutrient and seed
producers. At the end of July, Archer reported 4Q 2012 net income of
$284 million or $0.43 per diluted share, down from $381 million or $0.58
per diluted share in 4Q 2011, falling short of consensus forecast of
$0.60. The decline in earnings reflected losses in the U.S. ethanol
business. The company expects to benefit over time from rising living
standards in emerging markets and increasing demand for agricultural
products. It would appear investors agree - Archer trades at a trailing
P/E of 15, and a forward P/E of 10, putting its PEG at 1.1. Of the five
agricultural commodity-related companies mentioned here, Archer has
underwhelmed the most year-to-date in terms of price performance, down
4%.
However, Archer did have some of the more positive fund
interest during the second quarter. AQR Capital Management increased
their stake by 74% and SAC Capital increased theirs by 165%, two of
Archer’s top five owners by shares. Also noteworthy is D.E. Shaw’s 619%
increase, as well as Arrowstreet Capital and Ray Dalio of Bridgewater
Associates's new stakes in the company.
Mosaic Co (NYSE:MOS)
is a producer and marketer of phosphate and potash crop nutrients.
Mosaic posted 2Q EPS of $1.19, versus last quarter EPS of $1.45 on flat
net sales. Mosaic noted that 2Q EPS was negatively impacted by lower
phosphate pricing, notable items totaling $0.06. Mosaic is up 18% year
to date, even as cultivation of corn is the largest single use of
fertilizer in the United States, at about 45% of total consumption.
Three
of Mosaic’s top five owners by shares downsized their positions in 2Q
by more than 20%. D.E. Shaw downsized by 23%, Chilton Investment Company
by 27%, and SAC Capital by 31%. Mosaic is a top pick of Cobalt Capital.
source: Insider Monkey
For more on agricultural investments, visit http://ggagriculture.com/agri-invest/
