Agribusiness sector-specific exchange traded funds bounced Tuesday, rallying on a potential tie-up between Canada’s Agrium Inc (NYSE: AGU) and Potash Corp of Saskatchewan Inc. (NYSE: POT).
Among the best performing ETFs on Tuesday, the Global X Fertilizers/Potash ETF (NYSEArca: SOIL) rose 2.1% and the broader Market Vectors Agribusiness (NYSEArca: MOO) and PowerShares Global Agriculture Portfolio (NYSEArca: PAGG) were 1.1% and 2.4% higher, respectively.
Potash Corp, the world’s largest crop nutrient company by capacity, and Agrium, North America’s largest farm retailer, said in separate statements that talks were at “preliminary” stages over a possible merger of equals, reports Rod Nickel for Reuters.
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AGU shares jumped 6.0% and POT shares surged 11.8% on the potential union.
AGU makes up 4.7% of SOIL’s underlying holdings, 4.2% of MOO and 7.9% of PAGG. POT accounts for 4.6% of SOIL, 4.0% of MOO and 7.8% of PAGG.
SOIL provides targeted exposure to fertilizer producers around the world. The broader MOO includes companies involved in agri-chemicals, animal health, fertilizers, seeds and traits, farm/irrigation equipment and farm machinery, along with agricultural products, agriculture and fishing and livestock plantations. PAGG also takes broad coverage of agriculture and farming related businesses.
[related_stories]The fertilizer industry strengthened on the potential merger activity. Fertilizer companies have suffered from lower profits in recent years after crop nutrient prices fell to multi-year lows on excessive supply and demand and declining commodity prices.
“(A merger) will make them a better force to compete on a global scale,” Mohsin Bashir, portfolio manager at Stone Asset Management Ltd, told Reuters.
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Colin Isaac, an analyst with Atlantic Equities, argued that the potential deal would probably help generate growth and cut costs for both companies, Bloomberg reports.
“People will use this as evidence we’re at the bottom of the cycle,” Isaac told Bloomberg. “It’s probably more about synergies and generating some growth.”
For more information on the agriculture industry, visit our agribusiness category.
Global X Fertilizers/Potash ETF