Agribusiness ETFs Slump on Deteriorating Fundamentals
October 7th 2013 at 3:20pm by Tom Lydon
Agribusiness exchange traded funds found their footing after potash prices plummeted on low demand and growing supplies overseas.
The Market Vectors Agribusiness ETF (NYSEArca: MOO) increased 5.2% over the past month and the PowerShares Global Agriculture Portfolio (Nasdaq GIDS: PAGG) rose 5.6%. However, MOO is down 1.0% year-to-date while PAGG is off 4.7%.
BMO analyst Joel Jackson warns that the industry still faces problems, including “deteriorating supply/demand, potash market uncertainty, large Chinese nitrogen/phosphate export availability, emerging markets FX depreciation, weaker crop price expectations and Indian subsidy/demand challenges,” reports Andrew Bell for Business News Network.
Soft commodities prices have dipped this year on a larger planting season after the worst drought in half a century decimated crops last year.
“With low crop yields resulting from the drought last year, relatively few nutrients have been drawn out of the soil in 2012,” according to Morningstar analyst Alex Bryan. “As a result, farmers may reduce their application of potash and phosphate fertilizers this year.
While the short-term demand and supply dynamic could point to diminished potash and fertilizer prices, the long-term demand outlook still looks favorable, notably in the emerging markets where a growing population and rising middle class will increase meat consumption.
“As emerging-markets populations become wealthier, they are projected to increase their consumption of meat, which will have a disproportionate impact on the demand for grain because corn and soy are common ingredients in livestock feeds,” Bryan added. “It requires an estimated 4.5-6 pounds of grain, such as corn, to raise a pound of beef.”
MOO and PAGG are very similar. MOO’s top holdings include Syngenta 8.3%, Monsanto 8.3% and Deere & Co 6.9%, compared to PAGG’s top holdings of Potash Corp 8.1%, Monsanto 8.0% and Mosaic 8.0%.
MOO’s top country allocations include U.S. 47.9%, Canada 10.6% and Switzerland 8.3%. PAGG’s top countries include U.S. 40.3%, Canada 11.9% and Switzerland 7.9%.
Market Vectors Agribusiness ETF
For more information on the agribusiness sector, visit our agribusiness category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.