The materials sector, an epicenter of cyclical value traits, is performing admirably this year, and a source of that strength is agriculture equities, including fertilizer producers.
Check out the VanEck Vectors Agribusiness ETF (MOO). That exchange traded fund, which follows the MVIS Global Agribusiness Index, is beating the S&P 500 Materials Index by about 40 basis points year-to-date.
Some of MOO’s 52 components are “agri-chemicals, animal health and fertilizers, seeds and traits” producers, confirming that the fund is well-positioned to capitalize on soaring fertilizer prices.
“World fertilizer prices continue to soar as tightening supplies send costs up for farmers and consumers across the globe,” reports Elizabeth Elkin for Bloomberg. “In India, contract pricing for the nutrient potash skyrocketed 59% to $445 per metric ton, according to Bloomberg’s Green Markets. In Northwest Europe, potash prices rose 1.7%, the most since 2015. And in the U.S., the Green Markets North American Fertilizer Price Index climbed to the highest price ever for a third week in a row.”
Several MOO member firms are fertilizer producers, some of which are benefiting from the aforementioned soaring prices, indicating that the fund could be a credible inflation-fighting idea. On that note, it is inflation — particularly soaring energy prices — that’s pushing fertilizer prices to the upside.
“Crop-nutrient prices have been skyrocketing as an energy pinch in Europe makes natural gas, the main feedstock for most nitrogen fertilizer, more costly,” according to Bloomberg.
Adding to the case for MOO is a familiar theme: supply chain issues. Some of the countries that are major fertilizer producers are trimming exports to fortify supplies for domestic use.
“China and Russia are restricting nutrient exports to ensure sufficient domestic supplies. And (last) week, companies in Canada, a major potash exporter, are pursuing alternative shipping routes after flooding cut off Canada’s third-largest city from the rest of the country,” reports Bloomberg.
MOO fertilizer components include Nutrien (NYSE:NTRN), CF Industries (NYSE:CF), and Mosaic (NYSE:MOS). That trio combines for nearly 11% of the fund’s weight. There’s something else to consider with MOO. An often-overlooked point about the VanEck ETF is that while agriculture commodities are often volatile, MOO has been 350 basis points less volatile than the S&P 500 Materials Index over the past three years.
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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.