Agribusiness exchange traded funds could experience stunted growth as depressed grain prices squeeze farmers’ profit margins.
Over the past year, the Market Vectors Agribusiness (NYSEArca: MOO) rose 7.7% and PowerShares Global Agriculture Portfolio (NasdaqGM: PAGG) increased 7.6% higher.
U.S. farmers are beginning to cut back on farming equipment as the low crop prices and rising costs diminish income, reports Alan Bjerga for Bloomberg.
The U.S. government projects that farm income this year is heading toward the third consecutive decline and will post its largest fall since the Great Depression. Net-cash income from farm activity is expected to plunge 22% to $89.4 billion, the biggest drop off since 1932.
For instance, Illinois grower Jason Lay stated that he will purchase 30% less fertilizer for 2,500 acres of corn and soybeans, 7% fewer seeds for spring planting and no new equipment, with crop futures now trading near a five-year low.
“You spend when times are prosperous so you don’t need to when they’re not,” Lay said in the Bloomberg article. “That’s how you make it through.”
Over the past year, the Teucrium Corn Fund (NYSEArca: CORN) has declined 17.0% and Teucrium Soybean Fund (NYSEArca: SOYB) fell 14.1%.
The U.S. Department of Agriculture has predicted lower-than-expected U.S. corn stockpiles next year of 1.827 billion bushels, down from 1.877 billion, but raised its global stockpile projections to 189.6 million metric tons from 189.2 miillion, reports Jesse Newman for the Wall Street Journal.
“Combined grain supplies are substantial, and the market will not shift attention to the spring-planting progress and crop development across the Northern Hemisphere,” Jerry Gidel, the chief feed-grain analyst at Rice Dairy LLC, said in a Bloomberg article.
Market Vectors Agribusiness
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Max Chen contributed to this article.