The agribusiness industry and related exchange traded funds could continue to fall behind the broader market as U.S. farmers face a significant drop in income after a bumper crop year sent grain prices plummeting.
According to the Department of Agriculture, lower corn and soybean prices have cut U.S. farmers’ profits to an estimated $113.2 billion in 2014, a 14% drop from last year, Bloomberg reports.
Corn and soybean futures have both dipped to near four-year lows. Year-to-date, the Teucrium Corn Fund (NYSEArca: CORN) has declined 15.3% and Teucrium Soybean Fund (NYSEArca: SOYB) fell 5.7%. [Corn, Soybean ETFs Languish In Bumper Crop Year]
“Agriculture commodity prices have a significant impact on the performance of most agriculture businesses because their customers’ income and demand for inputs, such as tractors and fertilizer, is tied to grain prices,” according to Morningstar analyst Alex Bryan.
Broad agribusiness ETFs such as MOO and PAGG track a group of companies that cater toward the agricultural sector, including fertilizer producers, along with other companies involved in chemicals, equipment, agricultural products and live stock, among others. The U.S. makes up 48.4% of MOO’s underlying portfolio and 42.0% of PAGG.
The industry, though, is finding some support from cattle farmers as hog and cattle prices rose this year.
“It’s a reversal of fortunes. We had several years of incredible crop-sector income, but now it’s livestock,” University of Missouri at Columbia agriculture economist Pat Westhoff said in the article. “You’re starting to see some softness some places, and in some cases farmers are going to have trouble covering their expenses.”
Despite the better outlook from cattle farmers, the overall projected income figure for U.S. farmers is the lowest since 2010, reports Jessee Newman for the Wall Street Journal.
Market Vectors Agribusiness
For more information on the agriculture industry, 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.