LONDON, May 30 (Reuters) - Fertiliser prices have risen by as much as threefold over the last year and look set to remain strong as the world's rising population fuels an ever-expanding appetite for food, industry sources say.
"All fertiliser companies are showing good profits at the moment -- some would argue extraordinary profits," said Ken Bowler, marketing manager at GrowHow UK Ltd, Britain's last remaining producer of nitrogen fertiliser.
"I would probably think the next five years is a good time to be in this business," he added, noting stock market prices for leading fertiliser companies reflected that confidence.
GrowHow is a joint venture between Norway's Yara International (YAR.OL: Quote, Profile, Research) and U.S.-based Terra Industries (TRA.N: Quote, Profile, Research). Shares in both companies have risen dramatically with Terra peaking in January at $53.48, after trading as low as $5.45 two years earlier. Terra shares were trading on Thursday at $41.58.
Bowler said new fertiliser plants were planned to meet growing demand, particularly in areas with rising populations and low energy costs such as China and South America.
No new plants are planned in Britain although GrowHow is investing 15 million pounds ($29.55 million) to boost output and improve environmental emissions from its plant in northeast England.
"It is forecast that around 2011/2012 ... supply will exceed demand at that point with the new investments. In the run-up you may start to see prices come off," he said.
Britain uses about 3.7 million tonnes of fertilisers a year, including around 2.0 million tonnes of nitrogen. The balance includes nitrogen compounds as well as phosphate, potash and sulphur products.
Nitrogen manufacture is energy intensive so profits have been eroded by high prices for natural gas, which accounts for about 70 to 80 percent of production costs.
"The big winners at the moment are those producing potash and phosphates," Bowler said, adding prices for producers in Canada, the United States, Russia and North Africa had risen three-fold during the last 12 months.
ENVIRONMENTAL CHALLENGES
The industry faces environmental challenges, including pressure to reduce related emissions of nitrous oxide, a major greenhouse gas.
"Some plants have abatement technology already, others have investment programmes planted," said Jane Salter, head of environmental policy for the Agricultural Industries Confederation, a U.K. trade association.
"There will be investments over the next 20 years to deal with this aspect which will improve the carbon footprint of fertilisers considerably," she added.
Salter said the European fertiliser industry was taking part in consultations to set a target for reducing nitrous oxide emissions over a still undetermined time period.
"The release of nitrous oxide from agriculture and methane in livestock is inherent in the production of food. The best we can do is get the emissions per unit of production down," Salter said.
Methane produced by livestock as they digest food is also a potent greenhouse gas.
The industry's emissions are set to become more of a focus with the expansion of U.K. biofuels production.
Britain's government plans to link support for the biofuels sector to carbon savings, providing a significant incentive for producers to use crops grown with fertilisers which had been manufactured with lower emissions of greenhouse gases.
"The whole area of abatement, carbon trading and nitrous oxide emissions is very much going up the agenda. We are talking to government about that at the moment," Bowler said.
Friday, May 30, 2008
Hedge Funds Stay Locked in to Bullish Fertilizer Sector
The fertilizer industry was once considered dull, but after being one of the most exciting sectors in the market for over a year, those days appear to be long gone. A confluence of factors, including increasing wealth in emerging markets, raw material shortages, and biofuel demand, have pumped up fertilizer prices and made fertilizer producers top performers on the stock market.
Meanwhile, the ramifications have been more than just soaring stock prices. The Wall Street Journal reported that in April fertilizer costs were up 65% year over year, adding "Those skyrocketing costs are making it harder for farmers to expand their harvests in response to the global food crisis that has sparked rioting, rationing, and export controls in many countries."
As governments look for solutions and fertilizer producers attempt to ramp production, savvy investors have been rewarded. Several institutional investors are locked into the bullish market for fertilizer firms. Hedge fund Dawson Herman Capital Management, which "has traditionally invested in the growth sectors of the U.S. economy," according to its website, has substantial exposure to the sector. Its top-four, U.S-listed equity holdings are fertilizer producers. During Q1, the firm added shares in Potash (NYSE: POT - News), the biggest company in the sector, while trimming stakes in potash producer Mosaic (NYSE: MOS - News); Terra Industries (NYSE: TRA - News), a firm that produces nitrogen and methanol products for agricultural and industrial markets; and CF Industries (NYSE: CF - News), which operates in two segments, nitrogen fertilizers and phosphate fertilizers.
Dawson also held shares of companies in other sectors, with its largest equity holding outside the fertilizer industry being a 4.6 million-share stake in the world's biggest builder of electricity networks, ABB Ltd. (NYSE: ABB - News). A list of the other companies Dawson is investing in is available at tickerspy.com.
Another hedge fund, Peconic Partners, which "focuses on combining a top-down view of the markets with risk management and strong fundamental stock selection," according to its website, is also a big holder of fertilizer producers' shares. Its top-two holdings are Potash and Mosaic, but it also has large stakes in CF and Canadian producer Agrium (NYSE: AGU - News). Outside of the fertilizer sector, Peconic's largest stake is in coal producer Alpha Natural Resources (NYSE: ANR - News). A list of the other companies Peconic is investing in is available at tickerspy.com.
Potash proved to be the most popular fertilizer company among Pro investors in Q1. Among the 77 investment firms holding stakes in the company, the largest was a 19.2 million-share stake held by mutual fund giant Janus Capital Management. Meanwhile, Potash is also the favorite fertilizer stock among tickerspy members, though Terra Nitrogen (NYSE: TNH - News), an incredibly volatile master limited partnership (MLP) with a focus on nitrogen fertilizer products, is popular as well, as is recent IPO Intrepid Potash (NYSE: IPI - News).
Pro portfolio performance is based on institutions' top-15 holdings as disclosed in quarter-end filings with the SEC. Pro performance does not take into account additional holdings beyond the top 15 nor does it include positions that are not required to be disclosed by the SEC. As such, Pro portfolio performance should be considered an approximation and not a precise record of how an institution has performed over time.
Tap Into the Market Intelligence of Investment Pros & Individual Investors at tickerspy.com: Newly launched by Indie Research, tickerspy.com is a FREE financial website that lets you TRACK multiple stock portfolios, FIND and SHARE the latest news about the companies you follow, and SPY on the portfolios of nearly 2,000 Wall Street institutions and hedge funds and see graphs of their performance. Best of all, find out how YOU stack up against investing legends like Warren Buffett. Try tickerspy.com today!
Meanwhile, the ramifications have been more than just soaring stock prices. The Wall Street Journal reported that in April fertilizer costs were up 65% year over year, adding "Those skyrocketing costs are making it harder for farmers to expand their harvests in response to the global food crisis that has sparked rioting, rationing, and export controls in many countries."
As governments look for solutions and fertilizer producers attempt to ramp production, savvy investors have been rewarded. Several institutional investors are locked into the bullish market for fertilizer firms. Hedge fund Dawson Herman Capital Management, which "has traditionally invested in the growth sectors of the U.S. economy," according to its website, has substantial exposure to the sector. Its top-four, U.S-listed equity holdings are fertilizer producers. During Q1, the firm added shares in Potash (NYSE: POT - News), the biggest company in the sector, while trimming stakes in potash producer Mosaic (NYSE: MOS - News); Terra Industries (NYSE: TRA - News), a firm that produces nitrogen and methanol products for agricultural and industrial markets; and CF Industries (NYSE: CF - News), which operates in two segments, nitrogen fertilizers and phosphate fertilizers.
Dawson also held shares of companies in other sectors, with its largest equity holding outside the fertilizer industry being a 4.6 million-share stake in the world's biggest builder of electricity networks, ABB Ltd. (NYSE: ABB - News). A list of the other companies Dawson is investing in is available at tickerspy.com.
Another hedge fund, Peconic Partners, which "focuses on combining a top-down view of the markets with risk management and strong fundamental stock selection," according to its website, is also a big holder of fertilizer producers' shares. Its top-two holdings are Potash and Mosaic, but it also has large stakes in CF and Canadian producer Agrium (NYSE: AGU - News). Outside of the fertilizer sector, Peconic's largest stake is in coal producer Alpha Natural Resources (NYSE: ANR - News). A list of the other companies Peconic is investing in is available at tickerspy.com.
Potash proved to be the most popular fertilizer company among Pro investors in Q1. Among the 77 investment firms holding stakes in the company, the largest was a 19.2 million-share stake held by mutual fund giant Janus Capital Management. Meanwhile, Potash is also the favorite fertilizer stock among tickerspy members, though Terra Nitrogen (NYSE: TNH - News), an incredibly volatile master limited partnership (MLP) with a focus on nitrogen fertilizer products, is popular as well, as is recent IPO Intrepid Potash (NYSE: IPI - News).
Pro portfolio performance is based on institutions' top-15 holdings as disclosed in quarter-end filings with the SEC. Pro performance does not take into account additional holdings beyond the top 15 nor does it include positions that are not required to be disclosed by the SEC. As such, Pro portfolio performance should be considered an approximation and not a precise record of how an institution has performed over time.
Tap Into the Market Intelligence of Investment Pros & Individual Investors at tickerspy.com: Newly launched by Indie Research, tickerspy.com is a FREE financial website that lets you TRACK multiple stock portfolios, FIND and SHARE the latest news about the companies you follow, and SPY on the portfolios of nearly 2,000 Wall Street institutions and hedge funds and see graphs of their performance. Best of all, find out how YOU stack up against investing legends like Warren Buffett. Try tickerspy.com today!
Wednesday, May 28, 2008
Grow Returns with Syngenta
We remain buyers of Syngenta AG (NYSE: SYT - News), after the Swiss agrochemicals group's first-quarter results. We believe Syngenta is one of the safest plays in the sector, which should be reflected in higher valuations.
We are raising our target price to $65, as re-rating continues and currency effects. The depth of its product mix, robust business model, and our confidence in the management's ability to cut costs effectively, support our positive view on the stock.
One of Syngenta's key strengths is its broad base of strong, profitable products in two main divisions: crop protection and seeds. The company builds on these strengths by managing the two as independent units with strong management focus, while looking for opportunities to capture synergies across these two divisions, wherever appropriate.
Syngenta trades at 23.7x our 2008 EPS estimate. We think the discount to Monsanto (NYSE: MON - News)is unwarranted, even though Syngenta has lagged behind in the genetically-modified seeds segment. We believe Syngenta should trade in the 27.0x-30x range, which yields a target price of $65. The stock may be more volatile going forward, as the premium valuation is digested by investors but we believe there is room for further upside. Zacks.com
We are raising our target price to $65, as re-rating continues and currency effects. The depth of its product mix, robust business model, and our confidence in the management's ability to cut costs effectively, support our positive view on the stock.
One of Syngenta's key strengths is its broad base of strong, profitable products in two main divisions: crop protection and seeds. The company builds on these strengths by managing the two as independent units with strong management focus, while looking for opportunities to capture synergies across these two divisions, wherever appropriate.
Syngenta trades at 23.7x our 2008 EPS estimate. We think the discount to Monsanto (NYSE: MON - News)is unwarranted, even though Syngenta has lagged behind in the genetically-modified seeds segment. We believe Syngenta should trade in the 27.0x-30x range, which yields a target price of $65. The stock may be more volatile going forward, as the premium valuation is digested by investors but we believe there is room for further upside. Zacks.com
KMG expects 2008 earnings to fall on weak 3Q
KMG says weak results at 2 of its units in 3rd quarter will hurt fiscal-year earnings
HOUSTON (AP) -- Specialty chemicals maker KMG Chemicals Inc. said Wednesday that due to lower-than-expected sales at two of its segments, it expects fiscal 2008 earnings to fall 10 percent to 20 percent from the same quarter a year ago.
The guidance implies a profit of 64 cents to 72 cents per share. Analysts polled by Thomson Financial predict a profit of 99 cents per share for the fiscal year ending in July.
The company said it expects full-year sales to exceed $135 million, but sales were lower than expected in the third quarter for its Penta and Animal Health segments.
The company predicts fourth-quarter earnings will rise "significantly" form a year ago, but not enough to completely offset the expected decline in the fiscal third quarter.
Houston-based KMG said Animal Health business is seasonal, and was hurt by cooler than normal weather in some parts of the U.S.
Shares fell 25 cents to $12.24 during aftermarket electronic trading. They earlier rose 44 cents, or 3.7 percent, to close at $12.49.
HOUSTON (AP) -- Specialty chemicals maker KMG Chemicals Inc. said Wednesday that due to lower-than-expected sales at two of its segments, it expects fiscal 2008 earnings to fall 10 percent to 20 percent from the same quarter a year ago.
The guidance implies a profit of 64 cents to 72 cents per share. Analysts polled by Thomson Financial predict a profit of 99 cents per share for the fiscal year ending in July.
The company said it expects full-year sales to exceed $135 million, but sales were lower than expected in the third quarter for its Penta and Animal Health segments.
The company predicts fourth-quarter earnings will rise "significantly" form a year ago, but not enough to completely offset the expected decline in the fiscal third quarter.
Houston-based KMG said Animal Health business is seasonal, and was hurt by cooler than normal weather in some parts of the U.S.
Shares fell 25 cents to $12.24 during aftermarket electronic trading. They earlier rose 44 cents, or 3.7 percent, to close at $12.49.
Deere Lifts Dividend, Plows $5B Into Buyback
SAN FRANCISCO (Dow Jones) -- Deere & Co., basking in the glow of strong earnings from booming agricultural demand, said Wednesday it will hike its quarterly dividend by 12% and repurchase $5 billion of its own stock.
The company also said it plans to spend $35 million to increase its production of combine harvesters by about 30%.
Investors liked the news, pushing up Deere's (DE) share price by as much as 3.6%, or $2.87, to $82.73.
Deere's shares have risen sharply with the agricultural boom. As the price-per-bushel of corn has more than doubled since 2006, so have Deere's shares, which then sat in the mid-$30 range.
The company's shares have vaulted from a yearly low of $45.28 in January 2007 to the mid-to-low $80 range this May.
Deere said it expects to complete its combine manufacturing expansion by 2009.
The dividend payment will be 28 cents a share, up 3 cents a share from the previous level, payable Aug. 1 for shareholders of record on June 30.
"[The announcements] reflect our continuing confidence in the company's future direction and its ability to generate the cash flow to fund future growth opportunities while also returning cash directly to shareholders," said Chairman and CEO Robert Lane in a statement.
The buyback program comes on top of an existing 40 million-share buyback the company announced in May 2007. As of April 30, Deere still had about 23 million shares remaining to complete that first buyback. The company had about 430 million shares outstanding on April 30.
In its quarterly earnings report released two weeks ago, Deere said it had seen a 34% increase in its agricultural equipment sales. The company said it expects overall sales to increase by about 20% for the fiscal third quarter, which ends July 31, and agricultural equipment sales to jump by 35% for full-year 2008.
In the second-quarter statement, the company said net sales and revenues were up 18% and its earnings per share climbed 28% to $1.74 a share.
The Moline, Ill.-based company produces products for agriculture, forestry, construction and landscaping.
The company also said it plans to spend $35 million to increase its production of combine harvesters by about 30%.
Investors liked the news, pushing up Deere's (DE) share price by as much as 3.6%, or $2.87, to $82.73.
Deere's shares have risen sharply with the agricultural boom. As the price-per-bushel of corn has more than doubled since 2006, so have Deere's shares, which then sat in the mid-$30 range.
The company's shares have vaulted from a yearly low of $45.28 in January 2007 to the mid-to-low $80 range this May.
Deere said it expects to complete its combine manufacturing expansion by 2009.
The dividend payment will be 28 cents a share, up 3 cents a share from the previous level, payable Aug. 1 for shareholders of record on June 30.
"[The announcements] reflect our continuing confidence in the company's future direction and its ability to generate the cash flow to fund future growth opportunities while also returning cash directly to shareholders," said Chairman and CEO Robert Lane in a statement.
The buyback program comes on top of an existing 40 million-share buyback the company announced in May 2007. As of April 30, Deere still had about 23 million shares remaining to complete that first buyback. The company had about 430 million shares outstanding on April 30.
In its quarterly earnings report released two weeks ago, Deere said it had seen a 34% increase in its agricultural equipment sales. The company said it expects overall sales to increase by about 20% for the fiscal third quarter, which ends July 31, and agricultural equipment sales to jump by 35% for full-year 2008.
In the second-quarter statement, the company said net sales and revenues were up 18% and its earnings per share climbed 28% to $1.74 a share.
The Moline, Ill.-based company produces products for agriculture, forestry, construction and landscaping.
Portfolio Sweetener
Oil is not the only commodity surging ahead these days. Thanks to government-subsidized ethanol production and growing global food demand, corn has been transformed into one of the hottest commodities on the market.
Indeed the price of corn has risen more than 75% in the last 12 months to $6 per bushel. No surprise then that Corn Products International (nyse: CPO - news - people ), one of the world's largest corn refiners, is firing on all cylinders. CPO makes sweeteners and starches including glucose, high fructose corn syrup, sorbitol and dextrose, which is found in everything from IV drips to McDonald's french fries and Gatorade.
Click here to download a free special report "Five Undiscovered Gems for Under $25."
Westchester, Ill.-based CPO was spun off from CPC International in 1997 and now provides products to more than 60 industries around the world. In 2007, it had $3.4 billion in sales and $198 million in net income, up 60% from the prior year.
Upside's best buy list has gained 410.8% since its May 1999 inception. Over the same period, Upside's buy list has gained 399.6%, the Russell 2000 Index has gained 65.4% and the S&P 500 Index has gained 7.3%. Click here for Upside's complete model portfolios with a free trial subscription.
"March quarter earnings per share surged 29% to $0.85, beating the consensus by $0.14," notes Richard Moroney, editor of the small- and mid-cap focused newsletter Upside. "Revenue jumped 22%, paced by a 36% increase in South America. Management raised profit guidance for 2008, reflecting solid industry fundamentals, particularly in South America. Per-share earnings should range from $2.90 to $3.15, vs. prior guidance of $2.65 to $2.85. Revenue should approach $4 billion."
Thanks to opportunistic commodity hedging and its ability to pass on most raw material costs (corn accounts for 40% to 60% of its costs) the company has been logging record profits. Its NYSE-listed shares are up 25% year to date.
Moroney thinks CPO is a long-term winner and has rated its stock a best buy. Moroney especially likes its recent quarterly dividend hike by 17% to $0.14 per share, payable July 25. Moroney notes in a recent hotline to subscribers that CPO's dividend increase is its second this year, and he's impressed by future growth prospects.
"Looking ahead, higher refining volumes in fast-growing international markets, expansion into new regions and an improved product mix should bolster results."
Indeed the price of corn has risen more than 75% in the last 12 months to $6 per bushel. No surprise then that Corn Products International (nyse: CPO - news - people ), one of the world's largest corn refiners, is firing on all cylinders. CPO makes sweeteners and starches including glucose, high fructose corn syrup, sorbitol and dextrose, which is found in everything from IV drips to McDonald's french fries and Gatorade.
Click here to download a free special report "Five Undiscovered Gems for Under $25."
Westchester, Ill.-based CPO was spun off from CPC International in 1997 and now provides products to more than 60 industries around the world. In 2007, it had $3.4 billion in sales and $198 million in net income, up 60% from the prior year.
Upside's best buy list has gained 410.8% since its May 1999 inception. Over the same period, Upside's buy list has gained 399.6%, the Russell 2000 Index has gained 65.4% and the S&P 500 Index has gained 7.3%. Click here for Upside's complete model portfolios with a free trial subscription.
"March quarter earnings per share surged 29% to $0.85, beating the consensus by $0.14," notes Richard Moroney, editor of the small- and mid-cap focused newsletter Upside. "Revenue jumped 22%, paced by a 36% increase in South America. Management raised profit guidance for 2008, reflecting solid industry fundamentals, particularly in South America. Per-share earnings should range from $2.90 to $3.15, vs. prior guidance of $2.65 to $2.85. Revenue should approach $4 billion."
Thanks to opportunistic commodity hedging and its ability to pass on most raw material costs (corn accounts for 40% to 60% of its costs) the company has been logging record profits. Its NYSE-listed shares are up 25% year to date.
Moroney thinks CPO is a long-term winner and has rated its stock a best buy. Moroney especially likes its recent quarterly dividend hike by 17% to $0.14 per share, payable July 25. Moroney notes in a recent hotline to subscribers that CPO's dividend increase is its second this year, and he's impressed by future growth prospects.
"Looking ahead, higher refining volumes in fast-growing international markets, expansion into new regions and an improved product mix should bolster results."
Before the Call: Down to Earth About Joy Global
Coal -- it's not just for breakfast anymore, but by breakfast time tomorrow, you'll be able to read the Q2 2008 earnings report for coal mining equipment maker Joy Global (Nasdaq: JOYG). Crunchy.
We'll have time aplenty to dissect the specific numbers after the news comes out. But before we begin obsessing over Joy Global's short-term progress, let's use these last few hours to review what investors think about it as a long-term investment. Our tool in this endeavor: Motley Fool CAPS, where we poll more than 105,000 investors for their views on more than 5,600 companies, Joy Global among them. Here's what Fools have to say about the company and its long-term prospects.
Up or down?
Nearly 1,000 investors have submitted ratings on Joy Global. Their verdict: Happy, happy, joy, joy!
Of the CAPS players polled, 97% expect Joy Global to outperform the market, good enough to earn this company a full plate of five stars on CAPS. Then again, optimism runs rampant among heavy-equipment manufacturers
Wall Street vs. Main Street
Wall Street's right there with Main Street on this one. All of the five analysts who've taken affirmative buy/sell positions on Joy Global are running with the bulls on this one. (Little wonder. The company's stock has crushed the market this past year, outperforming the S&P 500 by a good 57 points.)
Bull pitch
CAPS All-Star mathieugp penned the top-rated pro-Joy Global pitch back in March, and it went a little something like this:
This is surely a good company if you want to profit from the increase of production of copper and oil sands, two very profitable commodities to extract right now. Companies that extract those two commodities will need more equipment because they will want to get their resources on the market ASAP to profit [from] high prices, they will also need services for reparation and annual check-up on that equipment... Joy Global offers these services, they will enjoy increased production in the mining industry and this is [an] industry that will increase by great amount the actual production.
Yep. You read that right. In addition to making coal mining equipment, Joy Global also has a hand in digging up oil-soaked sand and other mineral deposits lying near the surface. And in addition to coal, it makes gear for delving into the earth in search of copper, iron ore, silver, gold, and diamonds. Basically, if you have to dig even a little bit for it, Joy Global can help.
Bear pitch
So what's the downside, you're asking? Well, there are a couple. Generally speaking, bears are an endangered species on this stock, but five people have chimed in with underperform pitches, including All-Star dwot, who raises the point that "Commodities [are] in oversupply." (Then again, dwot said this six months ago, and the prices of raw materials just keep going up.)
Since no one else is saying it, let me take the valuation argument here: Joy Global may be going great guns, and for as long as that lasts, great -- but it's also priced for perfection. The stock sells for 19 times trailing free cash flow and an even scarier 29 times trailing earnings. Yet analysts expect to see only 14% growth out of the company. Call me a Fool if you like, but that seems objectively expensive.
We'll have time aplenty to dissect the specific numbers after the news comes out. But before we begin obsessing over Joy Global's short-term progress, let's use these last few hours to review what investors think about it as a long-term investment. Our tool in this endeavor: Motley Fool CAPS, where we poll more than 105,000 investors for their views on more than 5,600 companies, Joy Global among them. Here's what Fools have to say about the company and its long-term prospects.
Up or down?
Nearly 1,000 investors have submitted ratings on Joy Global. Their verdict: Happy, happy, joy, joy!
Of the CAPS players polled, 97% expect Joy Global to outperform the market, good enough to earn this company a full plate of five stars on CAPS. Then again, optimism runs rampant among heavy-equipment manufacturers
Wall Street vs. Main Street
Wall Street's right there with Main Street on this one. All of the five analysts who've taken affirmative buy/sell positions on Joy Global are running with the bulls on this one. (Little wonder. The company's stock has crushed the market this past year, outperforming the S&P 500 by a good 57 points.)
Bull pitch
CAPS All-Star mathieugp penned the top-rated pro-Joy Global pitch back in March, and it went a little something like this:
This is surely a good company if you want to profit from the increase of production of copper and oil sands, two very profitable commodities to extract right now. Companies that extract those two commodities will need more equipment because they will want to get their resources on the market ASAP to profit [from] high prices, they will also need services for reparation and annual check-up on that equipment... Joy Global offers these services, they will enjoy increased production in the mining industry and this is [an] industry that will increase by great amount the actual production.
Yep. You read that right. In addition to making coal mining equipment, Joy Global also has a hand in digging up oil-soaked sand and other mineral deposits lying near the surface. And in addition to coal, it makes gear for delving into the earth in search of copper, iron ore, silver, gold, and diamonds. Basically, if you have to dig even a little bit for it, Joy Global can help.
Bear pitch
So what's the downside, you're asking? Well, there are a couple. Generally speaking, bears are an endangered species on this stock, but five people have chimed in with underperform pitches, including All-Star dwot, who raises the point that "Commodities [are] in oversupply." (Then again, dwot said this six months ago, and the prices of raw materials just keep going up.)
Since no one else is saying it, let me take the valuation argument here: Joy Global may be going great guns, and for as long as that lasts, great -- but it's also priced for perfection. The stock sells for 19 times trailing free cash flow and an even scarier 29 times trailing earnings. Yet analysts expect to see only 14% growth out of the company. Call me a Fool if you like, but that seems objectively expensive.
4 Stocks in Trouble
I see the identical pattern in 4 charts, so I am cutting back exposure to all 4. These have the makings of companies that could be beginning to break down. If I am wrong, I'll pay up a slight premium to regain exposure once the technical pattern improves. The names are different but it's the same pattern - 4 companies which are breaking down below their 50 day moving averages. Unless they quickly reverse back over and above, this could portend a more serious move downward.
I see a lot of other companies which could be approaching a similar set up with another day or two of bad behavior - i.e. we could have a lot of charts rolling over. So despite the tepid bounce-back in the indexes (which we said in the weekly roundup would not be surprising as nothing goes straight down), I am seeing some things I do not like in individual charts.
Mosaic (MOS) reduced to 1.2% exposure (from 2.2%)
CF Industries (CF) reduced to 0.6% exposure (from 1.2%)
Gafisa (GFA) reduced to 0.8% exposure (from 2.0%)
Ctrip.com (CTRP) reduce to 0.7% exposure (from 1.3%)
The first 3 names closed below this key level today; whereas the latter has been below for about a week, but since it bounced a bit today I am using that as an opportunity to cut since I missed doing so on the initial breakdown.
These moves take another 3.3% away from long exposure and into cash. Although a bounce was expected in the indexes as (a) the market lost 3.5% last week which is huge for an index and (b) the S&P 500 is now at a key long term support level, the 50 day moving average of 1377 - I continue to be cautious in the mid-term, although hazarding a guess of the day to day action is a fool's game. But I'm going to let the individual charts tell me the story; these 4 have turned (perhaps temporarily) for the worse, and there are quite a few others with potential to follow suit.
I see a lot of other companies which could be approaching a similar set up with another day or two of bad behavior - i.e. we could have a lot of charts rolling over. So despite the tepid bounce-back in the indexes (which we said in the weekly roundup would not be surprising as nothing goes straight down), I am seeing some things I do not like in individual charts.
Mosaic (MOS) reduced to 1.2% exposure (from 2.2%)
CF Industries (CF) reduced to 0.6% exposure (from 1.2%)
Gafisa (GFA) reduced to 0.8% exposure (from 2.0%)
Ctrip.com (CTRP) reduce to 0.7% exposure (from 1.3%)
The first 3 names closed below this key level today; whereas the latter has been below for about a week, but since it bounced a bit today I am using that as an opportunity to cut since I missed doing so on the initial breakdown.
These moves take another 3.3% away from long exposure and into cash. Although a bounce was expected in the indexes as (a) the market lost 3.5% last week which is huge for an index and (b) the S&P 500 is now at a key long term support level, the 50 day moving average of 1377 - I continue to be cautious in the mid-term, although hazarding a guess of the day to day action is a fool's game. But I'm going to let the individual charts tell me the story; these 4 have turned (perhaps temporarily) for the worse, and there are quite a few others with potential to follow suit.
Tuesday, May 27, 2008
The Agriculture Bull Keeps Getting Stronger
The agriculture bull market is in full swing and the prospects for the industry keep growing stronger. Agriculture is entrenched in supporting the basic needs of humans and is vital to the sustainability of a growing population. In fact, 45% of the world's workers are employed in agriculture. Recently, prices for crops have skyrocketed as farmers produced less food last year than was consumed, and stockpiles have been drawn down to 30-year lows.
The primary demand driver has come from emerging markets including China and India as consumers emerge from poverty and move to a protein-rich diet. Each pound of meat produced requires ten pounds of grain for animal feed. Improved diet demand is skyrocketing as the pace of economic development around the globe increases, and there is still a long way to go still.
20% of Asia is living on less than $1 a day and a full 1.5 billion in the region are living on under $2 a day. As incomes rise from the $2 a day level to $10 a day, people tend to initially spend their incomes on more meat, dairy, fruits, and vegetables. Once diets improve, life expectancies will be prolonged and place further strains on food supplies.
The overall population picture is also positive with the world population expected to move from 6 billion today to 8 billion by 2030. During that period, world food demand is expected to double according to the World Bank.
Government mandates for biofuel production have also driven up the values for crops. The 2007 US Energy Bill mandates that 36 billion gallons a year of renewable fuels be produced by 2022, and the European Union has a target for biofuels to supply 10% of their fuel needs by 2020. In the US, 30% of this year's corn crop will be siphoned towards ethanol use. There have been concerns that biofuels do more harm than good by actually using more energy than traditional sources, and also because they take away from the food supply. The fact is that even if biofuel production ceased, the fundamentals are still strong with the growth drivers from the emerging markets. After all, only 5% of the world's grain production goes to uses other than food.
Furthermore, farmland across the world has been steadily declining as urbanization, deforestation, and continued population growth take away about 24.7 million acres a year. The US alone is losing about a million acres a year to development. These figures are alarming and raise the question of how the world's growing food demand will be met.
The answer likely lies in genetically modified seeds produced by Monsanto (MON) and Syngenta (SYT), and also with adequate fertilizer usage. I believe the fertilizer arena presents the most attractive agriculture investment as significant barriers to entry, lack of resource availability, high costs of new plants, and long plant and infrastructure development time make the sector as attractive as oil was several years ago.
Fertilizer is necessary to replace the nutrients that crops remove from the soil, and a proper balance of the main three nutrients (nitrogen, phosphate, and potash) is necessary to maximize the yield and quality of crops. The value proposition for US farmers is $3 back for each $1 investment in fertilizer, $7.60 back per $1 investment in India, and $9 back in Indonesia.
Emerging countries including China and India have long under-applied fertilizer and triple cropped fields, which is not sustainable without chemical inputs. These countries are finally beginning to embrace the necessity of fertilizer. In fact, earlier this year China agreed to rates of $576 a ton for potash, nearly $400 higher than the year earlier and near spot rates. In the past China has commanded steep discounts for the large quantities they import but this year was different as supplies have become too tight. June spot prices have breached $1000 a ton and show no signs of stopping as no new capacity will be generated for at least 5 more years. Even now, farmers are not getting all the fertilizer they want because it's just not available.
Industry giant PotashCorp (POT) has vigorously rallied almost 200% over the last year and now sports a market cap of $61.4 billion. Even though this seems rich for a fertilizer company, PotashCorp is trading at only 12 times forward earnings estimates, and these estimates are likely to be drastically increased moving forward. PotashCorp owns 75% of the world's excess potash capacity and has significantly lower costs than its competitors: $94 cost per ton of potash produced vs. $135 for Mosaic (MOS).
With potash supplies so tight, PotashCorp has embarked on a project to increase its capacity by 70% by 2015. Several analysts on Wall Street have set price targets of $300 for the $200 stock, and these are based on conservative earnings estimates. PotashCorp is also part of Canpotex, an OPEC-like organization that markets and distributes fertilizer.
Mosaic (MOS) has also had a banner year adding 264% of value and now trading with a market cap of $53.2 billion. The company is majority-owned by Cargill and is close to achieving investment-grade credit ratings for its bonds. Like PotashCorp, Mosaic is one of the few companies with the ability to increase its capacity and plans to do so with a 50% increase by 2020. It may seem like these supply increases will flood the market and erode pricing power, but this is not likely as it will take about five years for these production increases to come on line, and by then demand will already be drastically higher.
Agrium (AGU) is also a large player in the space with a $13.3 market cap and a significant presence in the production of nitrogen. Nitrogen has the highest application rates of the three fertilizers, but faces high input costs from natural gas and ammonia. So far, producers have been able to pass these costs on to customers and should continue to be able to. Agrium is actually involved in the production of ammonia and has benefited from the increase in prices. They are also part of Canpotex along with PotashCorp and Mosaic.
CF Industries (CF) has the best financial position of all the fertilizer producers with cash on hand equal to 12% of its market cap, no debt, and a forward P/E ratio of just 8. CF is not involved in the production of potash but mines phosphate and nitrogen. CF won the rights to build new nitrogen operations in Peru due to open in 2012. The company has also been able to fend off increasing input prices by mark-to-market gains in natural gas derivatives, and through their ownership of phosphate rock mines in Florida. However, they have been negatively impacted by rising sulfur prices along with many other producers.
One of the year's hottest IPO's has been Intrepid Potash (IPI), which went public in April. The company is the largest US producer of potash and benefiting from all the same trends of the industry. In just over one month of trading, the stock is up 46% from its offer price. The company is considered to be speculative since it came to the market at an opportune time to feed investor appetite, but is merely trading at a forward multiple of 12. Intrepid uses solar evaporation technology at its plants and also produces Langbeinite, which could see a bigger market in the future.
The underlying fundamentals of the agriculture industry are very strong and comparable to what oil looked like two or three years ago. Each of these companies will benefit from the bullish trend and multiple growth drivers for many more years, but industry leaders PotashCorp and Mosaic should outperform because of their unique ability to add capacity of a rare good.
The recent limits on rice purchase placed at Costco and Sam's Club, and subsequent hoarding are just a drop in the bucket of what is going to come for the agriculture industry. People will need to eat, and as the PotashCorp motto states, the fertilizer producers will be doing their part "helping nature provide."
The primary demand driver has come from emerging markets including China and India as consumers emerge from poverty and move to a protein-rich diet. Each pound of meat produced requires ten pounds of grain for animal feed. Improved diet demand is skyrocketing as the pace of economic development around the globe increases, and there is still a long way to go still.
20% of Asia is living on less than $1 a day and a full 1.5 billion in the region are living on under $2 a day. As incomes rise from the $2 a day level to $10 a day, people tend to initially spend their incomes on more meat, dairy, fruits, and vegetables. Once diets improve, life expectancies will be prolonged and place further strains on food supplies.
The overall population picture is also positive with the world population expected to move from 6 billion today to 8 billion by 2030. During that period, world food demand is expected to double according to the World Bank.
Government mandates for biofuel production have also driven up the values for crops. The 2007 US Energy Bill mandates that 36 billion gallons a year of renewable fuels be produced by 2022, and the European Union has a target for biofuels to supply 10% of their fuel needs by 2020. In the US, 30% of this year's corn crop will be siphoned towards ethanol use. There have been concerns that biofuels do more harm than good by actually using more energy than traditional sources, and also because they take away from the food supply. The fact is that even if biofuel production ceased, the fundamentals are still strong with the growth drivers from the emerging markets. After all, only 5% of the world's grain production goes to uses other than food.
Furthermore, farmland across the world has been steadily declining as urbanization, deforestation, and continued population growth take away about 24.7 million acres a year. The US alone is losing about a million acres a year to development. These figures are alarming and raise the question of how the world's growing food demand will be met.
The answer likely lies in genetically modified seeds produced by Monsanto (MON) and Syngenta (SYT), and also with adequate fertilizer usage. I believe the fertilizer arena presents the most attractive agriculture investment as significant barriers to entry, lack of resource availability, high costs of new plants, and long plant and infrastructure development time make the sector as attractive as oil was several years ago.
Fertilizer is necessary to replace the nutrients that crops remove from the soil, and a proper balance of the main three nutrients (nitrogen, phosphate, and potash) is necessary to maximize the yield and quality of crops. The value proposition for US farmers is $3 back for each $1 investment in fertilizer, $7.60 back per $1 investment in India, and $9 back in Indonesia.
Emerging countries including China and India have long under-applied fertilizer and triple cropped fields, which is not sustainable without chemical inputs. These countries are finally beginning to embrace the necessity of fertilizer. In fact, earlier this year China agreed to rates of $576 a ton for potash, nearly $400 higher than the year earlier and near spot rates. In the past China has commanded steep discounts for the large quantities they import but this year was different as supplies have become too tight. June spot prices have breached $1000 a ton and show no signs of stopping as no new capacity will be generated for at least 5 more years. Even now, farmers are not getting all the fertilizer they want because it's just not available.
Industry giant PotashCorp (POT) has vigorously rallied almost 200% over the last year and now sports a market cap of $61.4 billion. Even though this seems rich for a fertilizer company, PotashCorp is trading at only 12 times forward earnings estimates, and these estimates are likely to be drastically increased moving forward. PotashCorp owns 75% of the world's excess potash capacity and has significantly lower costs than its competitors: $94 cost per ton of potash produced vs. $135 for Mosaic (MOS).
With potash supplies so tight, PotashCorp has embarked on a project to increase its capacity by 70% by 2015. Several analysts on Wall Street have set price targets of $300 for the $200 stock, and these are based on conservative earnings estimates. PotashCorp is also part of Canpotex, an OPEC-like organization that markets and distributes fertilizer.
Mosaic (MOS) has also had a banner year adding 264% of value and now trading with a market cap of $53.2 billion. The company is majority-owned by Cargill and is close to achieving investment-grade credit ratings for its bonds. Like PotashCorp, Mosaic is one of the few companies with the ability to increase its capacity and plans to do so with a 50% increase by 2020. It may seem like these supply increases will flood the market and erode pricing power, but this is not likely as it will take about five years for these production increases to come on line, and by then demand will already be drastically higher.
Agrium (AGU) is also a large player in the space with a $13.3 market cap and a significant presence in the production of nitrogen. Nitrogen has the highest application rates of the three fertilizers, but faces high input costs from natural gas and ammonia. So far, producers have been able to pass these costs on to customers and should continue to be able to. Agrium is actually involved in the production of ammonia and has benefited from the increase in prices. They are also part of Canpotex along with PotashCorp and Mosaic.
CF Industries (CF) has the best financial position of all the fertilizer producers with cash on hand equal to 12% of its market cap, no debt, and a forward P/E ratio of just 8. CF is not involved in the production of potash but mines phosphate and nitrogen. CF won the rights to build new nitrogen operations in Peru due to open in 2012. The company has also been able to fend off increasing input prices by mark-to-market gains in natural gas derivatives, and through their ownership of phosphate rock mines in Florida. However, they have been negatively impacted by rising sulfur prices along with many other producers.
One of the year's hottest IPO's has been Intrepid Potash (IPI), which went public in April. The company is the largest US producer of potash and benefiting from all the same trends of the industry. In just over one month of trading, the stock is up 46% from its offer price. The company is considered to be speculative since it came to the market at an opportune time to feed investor appetite, but is merely trading at a forward multiple of 12. Intrepid uses solar evaporation technology at its plants and also produces Langbeinite, which could see a bigger market in the future.
The underlying fundamentals of the agriculture industry are very strong and comparable to what oil looked like two or three years ago. Each of these companies will benefit from the bullish trend and multiple growth drivers for many more years, but industry leaders PotashCorp and Mosaic should outperform because of their unique ability to add capacity of a rare good.
The recent limits on rice purchase placed at Costco and Sam's Club, and subsequent hoarding are just a drop in the bucket of what is going to come for the agriculture industry. People will need to eat, and as the PotashCorp motto states, the fertilizer producers will be doing their part "helping nature provide."
Monsanto expects to double gross profit by 2012
Monsanto Co. said Tuesday that it expects to more than double its fiscal 2007 gross profit by 2012 by executing a strategy that delivers increased productivity and yield to farmers. The company's chairman, president and CEO, Hugh Grant, will include that in remarks as part of a presentation at the Sanford Bernstein 2008 Strategic Decisions Conference in New York later this week, the company said.
Monsanto reported a gross profit of $4.29 billion in fiscal year 2007 ended Aug. 31. The company's net income for the period was $993 million.
"We also plan to launch three new game-changing platforms through 2012," Grant said in a statement.
The company said in a release that Grant will also emphasize how boosting yield-per-acre can make a meaningful difference in this supply-demand environment.
"Getting more yield from the land already in production today is the most viable solution," Grant said.
St. Louis-based Monsanto Co. (NYSE: MON) develops insect- and herbicide-resistant crops and other agricultural products.
Monsanto reported a gross profit of $4.29 billion in fiscal year 2007 ended Aug. 31. The company's net income for the period was $993 million.
"We also plan to launch three new game-changing platforms through 2012," Grant said in a statement.
The company said in a release that Grant will also emphasize how boosting yield-per-acre can make a meaningful difference in this supply-demand environment.
"Getting more yield from the land already in production today is the most viable solution," Grant said.
St. Louis-based Monsanto Co. (NYSE: MON) develops insect- and herbicide-resistant crops and other agricultural products.
CF Industries Sees Global Demand
We rate fertilizer maker CF Industries Holdings (NYSE: CF - News) a Buy, as strong domestic and international grain markets have produced an exceptionally high global demand for fertilizer, translating into substantially higher selling prices for all its products. The company is particularly optimistic about its phosphate segment since both domestic and export demands remain strong.
The phosphate market will remain tight next year based on healthy offshore demand growth in India and Brazil, as well as higher application rates in the U.S. Moreover, low stocks, new demand for corn that created the largest corn crop since 1944, significantly increased acreage and fertilizer application rates have positive impact on phosphate prices. This is likely to lead to higher price and cash margins for various fertilizers.
Currently, CF Industries Holdings is valued at 9.8x our 2008 estimate of $13. The demand for fertilizer has been driven by a confluence of events, including population growth, shrinking world grain stocks and the appetite for corn and palm oil used to make biofuel. The company has leading market share in many key fertilizers and should benefit from its position in the demand-driven market. We have a price target of $140 on the stock, which is 10.8x our 2008 estimate. Zacks.com
The phosphate market will remain tight next year based on healthy offshore demand growth in India and Brazil, as well as higher application rates in the U.S. Moreover, low stocks, new demand for corn that created the largest corn crop since 1944, significantly increased acreage and fertilizer application rates have positive impact on phosphate prices. This is likely to lead to higher price and cash margins for various fertilizers.
Currently, CF Industries Holdings is valued at 9.8x our 2008 estimate of $13. The demand for fertilizer has been driven by a confluence of events, including population growth, shrinking world grain stocks and the appetite for corn and palm oil used to make biofuel. The company has leading market share in many key fertilizers and should benefit from its position in the demand-driven market. We have a price target of $140 on the stock, which is 10.8x our 2008 estimate. Zacks.com
Super Seed Swap
Instead of continuing to fight each other in court, agribusiness companies Syngenta (NYSE: SYT) and Monsanto (NYSE: MON) called a truce for their never-ending patent disputes last week.
In the settlement, Monsanto gets a royalty-bearing license to Syngenta's technology to make crops tolerant to dicamba, an herbicide that kills weeds but not resistant crops. Syngenta gets a license to Monsanto's Roundup-tolerant and insect-protected corn borer traits.
Without knowing the royalty rates for the licenses, it's a little hard to know which company got the better deal. It's worth noting that both companies agreed to drop lawsuits against each other as part of the deal. It looks to me like Monsanto had more to lose with the lawsuits, because Syngenta was making antitrust claims against Monsanto. If Monsanto had lost, presumably that would have put other licensing deals in jeopardy.
The future of crops is multiple traits -- drought tolerance, herbicide resistance, and higher yield, for instance -- combined in one plant. We're already seeing the start of the stacked-trait era with products like Monsanto's SmartStax Corn. The crop, which should launch in 2010, will have eight generic modifications to improve its yield.
It's interesting how the companies are going about combining the traits that their competitors own. Monsanto has a deal with BASF to discover new traits, and Syngenta has a similar deal with DuPont's (NYSE: DD) Pioneer. Now all we need is a deal between DuPont and BASF and the circle will be complete.
If the companies continue this, it seems possible that eventually, all the seed manufacturers will be selling the same super seeds with traits developed by all the different companies. In the meantime, the deal between Monsanto and Syngenta should help both companies compete against their rivals.
In the settlement, Monsanto gets a royalty-bearing license to Syngenta's technology to make crops tolerant to dicamba, an herbicide that kills weeds but not resistant crops. Syngenta gets a license to Monsanto's Roundup-tolerant and insect-protected corn borer traits.
Without knowing the royalty rates for the licenses, it's a little hard to know which company got the better deal. It's worth noting that both companies agreed to drop lawsuits against each other as part of the deal. It looks to me like Monsanto had more to lose with the lawsuits, because Syngenta was making antitrust claims against Monsanto. If Monsanto had lost, presumably that would have put other licensing deals in jeopardy.
The future of crops is multiple traits -- drought tolerance, herbicide resistance, and higher yield, for instance -- combined in one plant. We're already seeing the start of the stacked-trait era with products like Monsanto's SmartStax Corn. The crop, which should launch in 2010, will have eight generic modifications to improve its yield.
It's interesting how the companies are going about combining the traits that their competitors own. Monsanto has a deal with BASF to discover new traits, and Syngenta has a similar deal with DuPont's (NYSE: DD) Pioneer. Now all we need is a deal between DuPont and BASF and the circle will be complete.
If the companies continue this, it seems possible that eventually, all the seed manufacturers will be selling the same super seeds with traits developed by all the different companies. In the meantime, the deal between Monsanto and Syngenta should help both companies compete against their rivals.
As food prices spiral, farmers, others profit
As food prices climb, so do profits for farmers -- and a whole lot of other people
WILLMAR, Minn. (AP) -- The steepest run-ups in food prices since 1990 are hurting grocery shoppers, restaurants and school cafeterias but they're making others rich.
The winners in the new food economy include crop farmers selling corn and wheat for near-record highs after years of crushingly low prices. Ingredient makers like Cargill and ADM are rife with profits. Fertilizer and tractor companies are cashing in. Hedge funds who made big bets on rising wheat, soy and corn were spectacularly correct. Oil and gas companies, too -- it takes natural gas to cook those Wheaties and diesel to haul them around the country.
Travel along the nation's food chain and you'll find some of the biggest profits closest to the land. The nation's farmers, who raise everything from cows to cucumbers, saw their average household income climb about 7 percent last year to more than $83,000. But in grain-rich states, the results were dramatically higher. In Minnesota alone, the median income for crop farmers soared 80 percent to $95,000.
That brings us to Chad Willis.
Willis raises corn and soy beans on 550 acres near Willmar, some of the nation's best corn-growing country.
He sells his grain nine miles up the road from an ethanol plant he invested in. His family cars are powered by an 85 percent blend of the corn-based fuel. His black and gold-trimmed cap reads "E85 Everywhere." And he knows that grocery shoppers jolted by higher prices for cereal or eggs or chicken think it's because of ethanol, which consumed 20 percent of last year's corn crop.
Willis isn't saying how much he made last year. While he acknowledges these are good times to be a farmer, he says he's not pulling in as much as the median income for crop farmers.
"Most people are excited, yes, but cautious about when things are going to turn around, and how hard it's going to turn around," he said.
In between Willis' farm and town, the owners of Haug Implement are having some of the best times anyone can remember. The Deere & Co. dealer sells farm tractors that can run to $160,000 or more and combines that can cost $300,000, a major investment even in the best of times.
Normally Haug would still be taking orders for combines for delivery for the fall harvest. But Deere cut off new orders in mid-November because demand was so high.
Owner Donald Haug Jr. says it wasn't long ago that he couldn't close on new equipment unless he narrowed the gap between trade-in and the sale price to $10,000.
"We're seeing some substantial purchasing, and we're talking over $100,000, and the guy just strokes the check for it," he said.
The boom times in farm country have arrived. Corn, soybean, and wheat prices have been pushed at or near record highs by a combination of high demand and new money from hedge fund traders who used to show little interest in those markets. Over the past 20 years, Minneapolis Grain Exchange trading volume has risen almost six-fold to a new record last year. The run-up is because in the frenzied trading the same commodities are changing hands far more than they used to.
"Grain farmers are making a hell of a lot of money," said Peter Georgantones, president of Investment Trading Services, a commodities brokerage in Bloomington, Minn. "I got grain farmers -- a ton of them -- who are going to improve their net worth this year -- net, now -- by a half a million bucks minimum. For one year. That's a nice gain. Not to mention their land's worth more."
Newspapers cover much of the floor in his office and 22 yellow Post-it notes cover much of his desk, where one computer terminal shows nothing but commodity prices. Every few minutes his phone rings with a call from a farmer checking crop prices.
"These guys, they grow 60, 70, 80 thousand bushels of beans," he said. "I got guys sitting on $2, $3 million worth of grain right now. Farmers are making good money."
The International Monetary Fund estimates biofuels accounted for almost half the increase in consumption of major food crops in 2006-2007, saying it has propelled prices for corn, other grains, meat, poultry and dairy.
Others dispute that. A report last month from the Agricultural and Food Policy Center at Texas A&M University said higher corn prices have had little to do with rising food costs because other factors, such as rising energy costs, have been at least as important.
Willis, the farmer near Willmar, is quick to point out that farmers pay much of those profits right back out to their own suppliers.
The liquid propane that runs his corn drier cost $1.55 per gallon last year. He's been told to expect $2 this year. Fertilizer last year ran $115 per acre. This spring it cost double that. He bought 2,500 gallons of diesel fuel for his tractors last year, at a price that started at $2.50 a gallon and rose to $3.09 by the end of the year and has risen further since then.
"You look at the grain prices, yeah, that's nice," he said. "But everything's going up right along with it."
While virtually all businesses are contending with higher energy costs, the rising commodities prices are proving to be bottom-line boosters for other sectors, too.
Profits at seed and pesticide maker Monsanto Inc. reached nearly $1 billion last year -- a 14-fold increase since 2003. They've tripled to $1.1 billion at agrichemical maker Syngenta and agriculture divisions of DuPont Co. and Dow Chemical Co. have also seen their earnings balloon.
Cargill, which makes ingredients and trades in commodities markets, boosted its profits to $2.3 billion, up nearly six-fold since 2001.
Meanwhile, profits at agricultural processor Archer Daniels Midland Co. have more than quadrupled to $2.16 billion during the same period.
Fertilizer makers are winning big, too.
Mosaic Co. saw its third-quarter profits jump tenfold to $520.8 million because strong demand from farmers is giving it power to raise prices.
Companies like Deere, the world's biggest maker of farm machinery, are in the midst of flush times, too.
Between 2005 and 2007, Deere's net profit rose more than 25 percent to $1.8 billion. Meanwhile, operating profits of the Moline, Ill.-based company's agriculture division rose nearly 50 percent, to $1.4 billion.
"Everybody is getting their little piece. Everybody wants a piece of the pie," said Lee Richardson, a 37-year-old farmer from Willards, Md., who's seen the robust profits of his grain harvest consumed by the increasing costs of raising more than 1 million chickens annually on his family's 2,200-acre farm
Food prices in the U.S. rose about 4 percent last year, which may not sound like much, but it's the fastest rate since 1990, according to the Agriculture Department. Prices on some foods rose much faster. White bread prices rose 13 percent last year, bacon 7 percent. Peanut butter jumped 9 percent.
And it's picking up speed. Food inflation is running at an annualized rate of 6.1 percent as of April, the Bureau of Labor Statistics reported on May 14.
In addition, a weakened dollar makes American produce cheap and desirable abroad while weather-wrecked harvests in some foreign countries have generated regional scarcities, increasing global demand for products. At the same time, emerging economies in India and China are creating nations of residents demanding higher-quality ingredients and food.
The rising prices are forcing changes at food and ingredient buyers such as Kraft Foods Inc.
Kraft Foods Inc. has seen its commodities costs grow 9 percent, or $1.3 billion. This year, the company expects to see an even bigger input cost increase.
It's raising prices across the board, but the Northfield, Ill.-based food maker is also getting innovative by changing some product packaging to save money. It switched its classic Miracle Whip jar from glass to plastic. The lighter packaging saves Kraft 87,000 gallons of fuel each year, said spokesman Mike Miller.
Even if this year's global harvest is robust, shoppers shouldn't expect big price breaks anytime soon. The USDA said it expects food prices to rise another 4 percent to 5 percent this year.
"We're in a new era," said Mike Helmar, director of industry economics at Moody's Economy.com, "where prices are going to be a bit higher than they were in the past."
Freed reported from Willmar and Minneapolis; Heher reported from Chicago.
WILLMAR, Minn. (AP) -- The steepest run-ups in food prices since 1990 are hurting grocery shoppers, restaurants and school cafeterias but they're making others rich.
The winners in the new food economy include crop farmers selling corn and wheat for near-record highs after years of crushingly low prices. Ingredient makers like Cargill and ADM are rife with profits. Fertilizer and tractor companies are cashing in. Hedge funds who made big bets on rising wheat, soy and corn were spectacularly correct. Oil and gas companies, too -- it takes natural gas to cook those Wheaties and diesel to haul them around the country.
Travel along the nation's food chain and you'll find some of the biggest profits closest to the land. The nation's farmers, who raise everything from cows to cucumbers, saw their average household income climb about 7 percent last year to more than $83,000. But in grain-rich states, the results were dramatically higher. In Minnesota alone, the median income for crop farmers soared 80 percent to $95,000.
That brings us to Chad Willis.
Willis raises corn and soy beans on 550 acres near Willmar, some of the nation's best corn-growing country.
He sells his grain nine miles up the road from an ethanol plant he invested in. His family cars are powered by an 85 percent blend of the corn-based fuel. His black and gold-trimmed cap reads "E85 Everywhere." And he knows that grocery shoppers jolted by higher prices for cereal or eggs or chicken think it's because of ethanol, which consumed 20 percent of last year's corn crop.
Willis isn't saying how much he made last year. While he acknowledges these are good times to be a farmer, he says he's not pulling in as much as the median income for crop farmers.
"Most people are excited, yes, but cautious about when things are going to turn around, and how hard it's going to turn around," he said.
In between Willis' farm and town, the owners of Haug Implement are having some of the best times anyone can remember. The Deere & Co. dealer sells farm tractors that can run to $160,000 or more and combines that can cost $300,000, a major investment even in the best of times.
Normally Haug would still be taking orders for combines for delivery for the fall harvest. But Deere cut off new orders in mid-November because demand was so high.
Owner Donald Haug Jr. says it wasn't long ago that he couldn't close on new equipment unless he narrowed the gap between trade-in and the sale price to $10,000.
"We're seeing some substantial purchasing, and we're talking over $100,000, and the guy just strokes the check for it," he said.
The boom times in farm country have arrived. Corn, soybean, and wheat prices have been pushed at or near record highs by a combination of high demand and new money from hedge fund traders who used to show little interest in those markets. Over the past 20 years, Minneapolis Grain Exchange trading volume has risen almost six-fold to a new record last year. The run-up is because in the frenzied trading the same commodities are changing hands far more than they used to.
"Grain farmers are making a hell of a lot of money," said Peter Georgantones, president of Investment Trading Services, a commodities brokerage in Bloomington, Minn. "I got grain farmers -- a ton of them -- who are going to improve their net worth this year -- net, now -- by a half a million bucks minimum. For one year. That's a nice gain. Not to mention their land's worth more."
Newspapers cover much of the floor in his office and 22 yellow Post-it notes cover much of his desk, where one computer terminal shows nothing but commodity prices. Every few minutes his phone rings with a call from a farmer checking crop prices.
"These guys, they grow 60, 70, 80 thousand bushels of beans," he said. "I got guys sitting on $2, $3 million worth of grain right now. Farmers are making good money."
The International Monetary Fund estimates biofuels accounted for almost half the increase in consumption of major food crops in 2006-2007, saying it has propelled prices for corn, other grains, meat, poultry and dairy.
Others dispute that. A report last month from the Agricultural and Food Policy Center at Texas A&M University said higher corn prices have had little to do with rising food costs because other factors, such as rising energy costs, have been at least as important.
Willis, the farmer near Willmar, is quick to point out that farmers pay much of those profits right back out to their own suppliers.
The liquid propane that runs his corn drier cost $1.55 per gallon last year. He's been told to expect $2 this year. Fertilizer last year ran $115 per acre. This spring it cost double that. He bought 2,500 gallons of diesel fuel for his tractors last year, at a price that started at $2.50 a gallon and rose to $3.09 by the end of the year and has risen further since then.
"You look at the grain prices, yeah, that's nice," he said. "But everything's going up right along with it."
While virtually all businesses are contending with higher energy costs, the rising commodities prices are proving to be bottom-line boosters for other sectors, too.
Profits at seed and pesticide maker Monsanto Inc. reached nearly $1 billion last year -- a 14-fold increase since 2003. They've tripled to $1.1 billion at agrichemical maker Syngenta and agriculture divisions of DuPont Co. and Dow Chemical Co. have also seen their earnings balloon.
Cargill, which makes ingredients and trades in commodities markets, boosted its profits to $2.3 billion, up nearly six-fold since 2001.
Meanwhile, profits at agricultural processor Archer Daniels Midland Co. have more than quadrupled to $2.16 billion during the same period.
Fertilizer makers are winning big, too.
Mosaic Co. saw its third-quarter profits jump tenfold to $520.8 million because strong demand from farmers is giving it power to raise prices.
Companies like Deere, the world's biggest maker of farm machinery, are in the midst of flush times, too.
Between 2005 and 2007, Deere's net profit rose more than 25 percent to $1.8 billion. Meanwhile, operating profits of the Moline, Ill.-based company's agriculture division rose nearly 50 percent, to $1.4 billion.
"Everybody is getting their little piece. Everybody wants a piece of the pie," said Lee Richardson, a 37-year-old farmer from Willards, Md., who's seen the robust profits of his grain harvest consumed by the increasing costs of raising more than 1 million chickens annually on his family's 2,200-acre farm
Food prices in the U.S. rose about 4 percent last year, which may not sound like much, but it's the fastest rate since 1990, according to the Agriculture Department. Prices on some foods rose much faster. White bread prices rose 13 percent last year, bacon 7 percent. Peanut butter jumped 9 percent.
And it's picking up speed. Food inflation is running at an annualized rate of 6.1 percent as of April, the Bureau of Labor Statistics reported on May 14.
In addition, a weakened dollar makes American produce cheap and desirable abroad while weather-wrecked harvests in some foreign countries have generated regional scarcities, increasing global demand for products. At the same time, emerging economies in India and China are creating nations of residents demanding higher-quality ingredients and food.
The rising prices are forcing changes at food and ingredient buyers such as Kraft Foods Inc.
Kraft Foods Inc. has seen its commodities costs grow 9 percent, or $1.3 billion. This year, the company expects to see an even bigger input cost increase.
It's raising prices across the board, but the Northfield, Ill.-based food maker is also getting innovative by changing some product packaging to save money. It switched its classic Miracle Whip jar from glass to plastic. The lighter packaging saves Kraft 87,000 gallons of fuel each year, said spokesman Mike Miller.
Even if this year's global harvest is robust, shoppers shouldn't expect big price breaks anytime soon. The USDA said it expects food prices to rise another 4 percent to 5 percent this year.
"We're in a new era," said Mike Helmar, director of industry economics at Moody's Economy.com, "where prices are going to be a bit higher than they were in the past."
Freed reported from Willmar and Minneapolis; Heher reported from Chicago.
Monday, May 26, 2008
Rising costs lead farmers to go high tech
High fuel and chemical prices increasing farmer reliance on high-tech gear
CHAMPAIGN, Ill. (AP) -- When Martin Barbre got his first look three years ago at a system that would drive his tractor for him, he didn't buy the device -- or the premise that it would cut costs on his farm
When they first came out with them and we first looked at it, it seemed like a fancy gadget," said Barbre, a 53-year-old who grows corn and soybeans in southern Illinois.
But with the cost of fuel, seeds, fertilizer and just about everything else it takes to grow his crops rising fast, Barbre quickly came around after he started using the global positioning system to drive his tractor a year and a half ago. "As soon as we used it, we realized the benefits," he said.
American grain farmers are enjoying the highest crop prices of their lives, but they don't expect that to last forever. As a hedge against the inevitable downturn, owners of mid-size farms like Barbre's -- and even some smaller-scale farmers -- are investing that cash in technology that's increasingly integrated.
"These new economics have changed the whole landscape," said Dan Davidson, an agronomist with agricultural-data company DTN in Omaha, Neb. "They've got the money to spend; they're going to update. They know the (profit) margins we have today are not going to be around forever."
Large-scale farmers have used GPS-based automated steering for tractors, sensors that probe soil for nutrients and moisture and other gadgets since the late 1990s to cut their expenses and increase their production. It wasn't until the past five years or so, however, that the savings owners of smaller and mid-size farms could realize from using high-end technology would significantly offset their rising costs, said Davidson.
Sure, there were environmental benefits: spraying less fertilizer and fewer herbicides; not overwatering; cutting fuel costs and reducing soil compaction. And farmers could take the data that high-tech gear gathered in the field, download it to their computers and use it in planning.
But now fertilizer used by corn and soybean farms costs almost double what it did two years ago, while seeds and fuel cost almost 50 percent more, according to the U.S. Department of Agriculture.
Meanwhile, the cost of auto-steering systems -- among the most popular high-tech products -- has remained relatively flat the past few years, and in some cases it has fallen. Systems that now typically cost from a few thousand dollars to $25,000 used to run as high as $40,000.
Look no further than Barbre's farm, he said, for examples of technology's payoff in the current farming economy -- and of how important it may be if costs continue rising.
With auto-steering, a farmer manually drives the perimeter of a field to map its boundaries so the GPS gadget can then direct the tractor to carve near-perfectly straight rows. A few systems will even turn the tractor around at the end of each row. By cutting down on overlap, the system saves fuel, and it means the same ground won't be planted twice or sprayed unnecessarily with fertilizer or pesticides.
Barbre estimates that using auto-steering on his 4,000 acres -- split about evenly between soybeans and corn -- has cut his fuel costs up to 5 percent.
"That's maybe 30, 50 cents an acre," he said. "Over 4,000 acres, that adds up."
Yield mapping -- tracking how much corn or soybeans parts of his fields produce, which he's used for more than 10 years -- brings him an extra $30 or $35 on every acre of corn. He figures he's spent about $14,000 on it over the years, buying and upgrading his hardware and software, for a net benefit of $60,000 to $70,000 or more per year on 2,000 acres of corn.
But technology has limits for Barbre. Some of his fields are cut into hilly terrain, while others are near-perfect squares and rectangles of flat prairie.
"This field I'm planting in right now goes all the way from flat, black ground to ridges with terraces in them," he said while taking a break from corn planting.
The auto-steering helps a lot more in fields like that and less on flat, relatively square tracts. Similarly, yield-monitoring can work wonders if you farm across different types of soil, but not so much if all your crops sprout from similar ground.
A lot also depends on how effectively a farmer uses the technology.
Iowa State University agriculture professor Matt Darr said buying and using high-tech gear is a lot like buying exercise equipment.
"Just because you have a treadmill in your basement doesn't mean you're in great shape," he said.
That's why equipment dealers are offering new services.
"They've had to hire consultants. They have to go out to the farm," said Barry Nelson, a spokesman for the agricultural equipment division at Moline, Ill.-based Deere & Co. "There are some extra expenses."
A 2007 survey of farm equipment dealers conducted by Purdue University and CropLife magazine found that 85 percent offered customers custom applications and someone to come out and put in-field technology to work. Only 45 percent reported making money on the services.
Companies like Deere now try to entice farmers to stick with their brand by making their various high-tech devices compatible so a farmer can get more use from data and high-tech parts, like GPS receivers.
"You can take the receiver off the tractor and plug it into the combine and, boom, you're off and running," said Nelson.
Just over the horizon, even more technology is coming to the farm.
Researchers at the University of Illinois are working on a small robot that can identify individual weeds in a field and spray them with herbicide so farmers don't have to spray an entire field as they commonly do now. The robot will move perhaps 2 mph picking out weeds by color, location and other characteristics, engineer Lei Tina said.
"Actually we have a prototype," he said. "We can identify the individual plant pretty well."
The technology is years from commercial viability, however.
Then again, Davidson said, what's expensive and far-fetched today may quickly become cost-effective if fuel and fertilizer costs don't drop back.
"All of these things are so tied to energy," he said. "I don't expect them to come back down."
Associated Press writer Jim Suhr in St. Louis contributed to this report.
CHAMPAIGN, Ill. (AP) -- When Martin Barbre got his first look three years ago at a system that would drive his tractor for him, he didn't buy the device -- or the premise that it would cut costs on his farm
When they first came out with them and we first looked at it, it seemed like a fancy gadget," said Barbre, a 53-year-old who grows corn and soybeans in southern Illinois.
But with the cost of fuel, seeds, fertilizer and just about everything else it takes to grow his crops rising fast, Barbre quickly came around after he started using the global positioning system to drive his tractor a year and a half ago. "As soon as we used it, we realized the benefits," he said.
American grain farmers are enjoying the highest crop prices of their lives, but they don't expect that to last forever. As a hedge against the inevitable downturn, owners of mid-size farms like Barbre's -- and even some smaller-scale farmers -- are investing that cash in technology that's increasingly integrated.
"These new economics have changed the whole landscape," said Dan Davidson, an agronomist with agricultural-data company DTN in Omaha, Neb. "They've got the money to spend; they're going to update. They know the (profit) margins we have today are not going to be around forever."
Large-scale farmers have used GPS-based automated steering for tractors, sensors that probe soil for nutrients and moisture and other gadgets since the late 1990s to cut their expenses and increase their production. It wasn't until the past five years or so, however, that the savings owners of smaller and mid-size farms could realize from using high-end technology would significantly offset their rising costs, said Davidson.
Sure, there were environmental benefits: spraying less fertilizer and fewer herbicides; not overwatering; cutting fuel costs and reducing soil compaction. And farmers could take the data that high-tech gear gathered in the field, download it to their computers and use it in planning.
But now fertilizer used by corn and soybean farms costs almost double what it did two years ago, while seeds and fuel cost almost 50 percent more, according to the U.S. Department of Agriculture.
Meanwhile, the cost of auto-steering systems -- among the most popular high-tech products -- has remained relatively flat the past few years, and in some cases it has fallen. Systems that now typically cost from a few thousand dollars to $25,000 used to run as high as $40,000.
Look no further than Barbre's farm, he said, for examples of technology's payoff in the current farming economy -- and of how important it may be if costs continue rising.
With auto-steering, a farmer manually drives the perimeter of a field to map its boundaries so the GPS gadget can then direct the tractor to carve near-perfectly straight rows. A few systems will even turn the tractor around at the end of each row. By cutting down on overlap, the system saves fuel, and it means the same ground won't be planted twice or sprayed unnecessarily with fertilizer or pesticides.
Barbre estimates that using auto-steering on his 4,000 acres -- split about evenly between soybeans and corn -- has cut his fuel costs up to 5 percent.
"That's maybe 30, 50 cents an acre," he said. "Over 4,000 acres, that adds up."
Yield mapping -- tracking how much corn or soybeans parts of his fields produce, which he's used for more than 10 years -- brings him an extra $30 or $35 on every acre of corn. He figures he's spent about $14,000 on it over the years, buying and upgrading his hardware and software, for a net benefit of $60,000 to $70,000 or more per year on 2,000 acres of corn.
But technology has limits for Barbre. Some of his fields are cut into hilly terrain, while others are near-perfect squares and rectangles of flat prairie.
"This field I'm planting in right now goes all the way from flat, black ground to ridges with terraces in them," he said while taking a break from corn planting.
The auto-steering helps a lot more in fields like that and less on flat, relatively square tracts. Similarly, yield-monitoring can work wonders if you farm across different types of soil, but not so much if all your crops sprout from similar ground.
A lot also depends on how effectively a farmer uses the technology.
Iowa State University agriculture professor Matt Darr said buying and using high-tech gear is a lot like buying exercise equipment.
"Just because you have a treadmill in your basement doesn't mean you're in great shape," he said.
That's why equipment dealers are offering new services.
"They've had to hire consultants. They have to go out to the farm," said Barry Nelson, a spokesman for the agricultural equipment division at Moline, Ill.-based Deere & Co. "There are some extra expenses."
A 2007 survey of farm equipment dealers conducted by Purdue University and CropLife magazine found that 85 percent offered customers custom applications and someone to come out and put in-field technology to work. Only 45 percent reported making money on the services.
Companies like Deere now try to entice farmers to stick with their brand by making their various high-tech devices compatible so a farmer can get more use from data and high-tech parts, like GPS receivers.
"You can take the receiver off the tractor and plug it into the combine and, boom, you're off and running," said Nelson.
Just over the horizon, even more technology is coming to the farm.
Researchers at the University of Illinois are working on a small robot that can identify individual weeds in a field and spray them with herbicide so farmers don't have to spray an entire field as they commonly do now. The robot will move perhaps 2 mph picking out weeds by color, location and other characteristics, engineer Lei Tina said.
"Actually we have a prototype," he said. "We can identify the individual plant pretty well."
The technology is years from commercial viability, however.
Then again, Davidson said, what's expensive and far-fetched today may quickly become cost-effective if fuel and fertilizer costs don't drop back.
"All of these things are so tied to energy," he said. "I don't expect them to come back down."
Associated Press writer Jim Suhr in St. Louis contributed to this report.
A Whole New Crop
A gene-altering technology from biotech Sangamo BioSciences may radically change what we eat
Jerome Peribere, the chief executive of Dow AgroSciences, has a slide show for investors. It explains how one could theoretically turn the offspring of a wild, berry-size tomato into a plant bearing full-size tomatoes just by tinkering with one gene. The sweet corn we eat for dinner would be a shriveled gray precursor called teosinte were it not for the activity of a handful of genes.
Food scientists have understood these distinctions for a decade thanks to traditional plant biotechnology research. It's what's on the next few slides that gets Peribere going: the possibility of easing world hunger by turning inedible oil crops like crambe into edible versions; tomatoes that will always taste good; crops that can survive through severe drought. These traits could be edited into a new form of the same species in a far more precise and accurate way than with the existing tricks in genetics' kit bag.
This technology, which Dow AgroSciences is moving toward the market, is called a zinc finger, a naturally occurring protein that can be used in a cell nucleus like an editor's red pencil. Zinc fingers, so named because they contain a zinc atom and are shaped like an index finger, can turn specific genes off or on or to some point in between, delete genes altogether or add new genetic material. "Within biotech," says the 54-year-old Peribere, "we believe this is one of the very disruptive technologies."
Success with the zinc finger could also give Dow AgroSciences, the crops unit of $54 billion (sales) Dow Chemical (nyse: DOW - news - people ), the second-largest chemical company in the world, a bigger share in the global agbiotech boom. Monsanto (nyse: MON - news - people )'s stock is up sevenfold since 2004 (trouncing Dow shares) thanks to its huge success selling seeds bioengineered to fight off bacteria and withstand direct application of Monsanto's own weed killer Roundup. Peribere's group, with $3.8 billion in revenue, lacks a significant presence in the genetically modified seed business. Its sales still come mostly from weed and bug killers, and in sum are less than half the sales of either Monsanto or Syngenta (nyse: SYT - news - people ). But zinc fingers, because of their precision, could give Dow a significant leg up by cutting a year or two off the six to eight years it now takes to develop a modified plant and get it past regulators.
In October 2005 Dow AgroSciences entered into an exclusive research agreement with Sangamo BioSciences (nasdaq: SGMO - news - people ), a biotech company in Richmond, California that controls most of the intellectual property around zinc finger research. It has drugs in development for ten diseases and two ongoing clinical trials, including ones for diabetic nerve injuries. Sangamo has also licensed its technology to Sigma-Aldrich (nasdaq: SIAL - news - people ), a chemicals firm, for use in discovering novel reagents for research. Amgen (nasdaq: AMGN - news - people ) and Genentech (nyse: DNA - news - people ) are also using Sangamo's zinc finger proteins to improve their manufacturing yields.
"We can target and regulate genes inside any cell in any organism," boasts Edward Lanphier, founder and chief executive of Sangamo. "This is enormously powerful science."
Dow Agro will likely sign an exclusive commercial licensing agreement with Sangamo between now and October, paying it royalties on sales of products developed using zinc finger proteins. So far Dow Agro has paid Sangamo $20 million, including a $4 million equity investment. The first fruits of the partnership aren't expected for four more years. Dow is coy about its plans, but Peribere drops hints.
"What about dramatically improving the sugar content in sugarcane?" he asks. Dow Chemical, in a separate project, already plans to make polyethylene from sugarcane ethanol in Brazil. Upping the sugar content in the cane would lead to a higher yield of ethanol per acre. A second possibility: altering specific genes to make it easier to break down the lignin in the cell walls of corn leaves and stalks, with an eye to making so-called cellulosic ethanol out of the unused part of the plants. Dow Agro biologists have already accurately inserted genetic material into specific locations in maize and rapeseed genomes using Sangamo's technology.
Use of highly targeted gene-modification tricks comes at a fortuitous time. Biologists are unearthing a trove of genomic information about plants. The rice genome was fully mapped in 2005. Corn's rough DNA blueprint was released in February, and the soybean's DNA is being mapped now. With maps in place, Dow and Sangamo's zinc fingers can be aimed directly at the genetic locations that would play the biggest role in curtailing the recent and sure to be ongoing disruptions in food and biofuels supply. "We are at the Stone Age of plant biotechnology," says Peribere. "In 25 years we are going to be laughing about what we are doing now."
Zinc fingers may also offer a way to get some genetically altered foods through regulatory approval faster than before. The European Commission and armies of environmentalists battled Monsanto nearly to a standstill over its GM seeds, but thanks to pressing global grain demand, Monsanto eventually won approval in all the world's biggest markets. The knock against Monsanto's technology was the use of foreign genes, something that Peribere says zinc fingers can avoid. When zinc fingers are used to delete genetic material, the mechanism for doing so, called a zinc finger nuclease, does not remain in the plant for more than a few days. "Our expectation is that as you are not introducing anything that stays in the ,plant, this is going to be considered non-GMO [by regulators]," Peribere told analysts in December.
That remains to be seen. Greenpeace International, a vocal opponent of genetically modified crops, is skeptical that zinc fingers can evade the GMO labeling. "It's not 100% clear, but I think that most of this would still be considered GMO because you're introducing a new gene, even if [the finger] doesn't stay in the plant," says Greenpeace International scientist Janet Cotter. Friends of the Earth Europe, another anti-GMO group, says that the Sangamo technology may well turn out to be a type of genetic modification that it would oppose.
If, that is, Sangamo crops ever make it out into the field. Zinc fingers are still unproved outside the lab. Dana Carroll, a biochemist at the University of Utah who has licensed some research to Sangamo, has run fruit fly experiments using zinc finger nucleases, in which the flies' genomes were cut in unintended places apart from the target area. Sangamo and other researchers have worked to fix some of this errant DNA editing, but Carroll says it is impossible to know if all unintended cutting has been eliminated.
Says Peribere, who was initially highly skeptical: "It's early science for some of this. It's costly. But it is disruptive. That is why we have embarked upon it."
For decades plant biologists have used brute-force methods of genetic engineering to produce biotech seeds that kill bugs and withstand herbicides. One common method was to cover small gold particles with genetic material and shoot them into the nucleus of the plant cell with a pressure gun. Where the new DNA ended up was random. It might land in the middle of an important gene and inadvertently disrupt the plant's growth.
Zinc fingers make this procedure highly targeted. Each finger is typically about 30 amino acids long, with a variable section at the tip. Sangamo scientists have engineered a library of 10,000 fingers by tinkering with the variable region, designing it so that it will seek out, recognize and bind to a specific segment of DNA for a specific gene. Sangamo scientists tether to the zinc finger a protein that contains the instructions for the targeted gene: turn on, turn off, get louder, pipe down. The finger is the homing mechanism; the tethered protein delivers the payload.
To add or delete genes, Sangamo tethers to the zinc finger the nuclease enzyme that can make a break in a specific location of DNA. Cells naturally try to repair the broken DNA, and the zinc finger nucleases use this repair system to either delete a targeted gene or integrate new DNA. "It copies and pastes the donor DNA like a Word document, right into the break, exactly where you want it," explains Philip Gregory, Sangamo's vice president of research.
Before inking the research deal with Sangamo, Dow Agro scientists evaluated other, more widely studied genetic manipulation technologies. But Dow decided none had the breadth of capability that zinc fingers do. Two better-known alternatives, antisense and rna-interference, the latter of which is being used now by Monsanto, can silence or shut down genes but cannot turn them on or make them louder. "We wanted one technology that could do it all," says Peribere.
It has taken Sangamo more than a decade to get the technology into shape. Lanphier, 52, studied biochemistry at Knox College and joined Eli Lilly (nyse: LLY - news - people )'s business planning department in the 1980s, then worked at a string of small biotechs. In 1995, while at Somatix Therapy, a Bay Area gene therapy company, he decided he wanted to start something on his own and began digging for ideas. He came across a 1991 article on zinc finger proteins published in Science by Carl Pabo, then a structural biology professor at the Massachusetts Institute of Technology. Lanphier kept digging and found that a Nobel Prize-winning British molecular biologist, Aaron Klug, had done some pioneering work on zinc fingers, as had researchers at Johns Hopkins and the Scripps Research Institute.
Lanphier licensed Klug's patents and the patents from MIT, Hopkins and Scripps. He raised $17 million in venture capital and took Sangamo public in 2000.
Well off its speculative highs earlier in the decade, Sangamo now has a $500 million market value. This biotech in a sleepy office park may hold the key to better crops, more efficient biofuels and drugs to cure the most elusive diseases. But it will be several years, at the least, before it proves itself.
Jerome Peribere, the chief executive of Dow AgroSciences, has a slide show for investors. It explains how one could theoretically turn the offspring of a wild, berry-size tomato into a plant bearing full-size tomatoes just by tinkering with one gene. The sweet corn we eat for dinner would be a shriveled gray precursor called teosinte were it not for the activity of a handful of genes.
Food scientists have understood these distinctions for a decade thanks to traditional plant biotechnology research. It's what's on the next few slides that gets Peribere going: the possibility of easing world hunger by turning inedible oil crops like crambe into edible versions; tomatoes that will always taste good; crops that can survive through severe drought. These traits could be edited into a new form of the same species in a far more precise and accurate way than with the existing tricks in genetics' kit bag.
This technology, which Dow AgroSciences is moving toward the market, is called a zinc finger, a naturally occurring protein that can be used in a cell nucleus like an editor's red pencil. Zinc fingers, so named because they contain a zinc atom and are shaped like an index finger, can turn specific genes off or on or to some point in between, delete genes altogether or add new genetic material. "Within biotech," says the 54-year-old Peribere, "we believe this is one of the very disruptive technologies."
Success with the zinc finger could also give Dow AgroSciences, the crops unit of $54 billion (sales) Dow Chemical (nyse: DOW - news - people ), the second-largest chemical company in the world, a bigger share in the global agbiotech boom. Monsanto (nyse: MON - news - people )'s stock is up sevenfold since 2004 (trouncing Dow shares) thanks to its huge success selling seeds bioengineered to fight off bacteria and withstand direct application of Monsanto's own weed killer Roundup. Peribere's group, with $3.8 billion in revenue, lacks a significant presence in the genetically modified seed business. Its sales still come mostly from weed and bug killers, and in sum are less than half the sales of either Monsanto or Syngenta (nyse: SYT - news - people ). But zinc fingers, because of their precision, could give Dow a significant leg up by cutting a year or two off the six to eight years it now takes to develop a modified plant and get it past regulators.
In October 2005 Dow AgroSciences entered into an exclusive research agreement with Sangamo BioSciences (nasdaq: SGMO - news - people ), a biotech company in Richmond, California that controls most of the intellectual property around zinc finger research. It has drugs in development for ten diseases and two ongoing clinical trials, including ones for diabetic nerve injuries. Sangamo has also licensed its technology to Sigma-Aldrich (nasdaq: SIAL - news - people ), a chemicals firm, for use in discovering novel reagents for research. Amgen (nasdaq: AMGN - news - people ) and Genentech (nyse: DNA - news - people ) are also using Sangamo's zinc finger proteins to improve their manufacturing yields.
"We can target and regulate genes inside any cell in any organism," boasts Edward Lanphier, founder and chief executive of Sangamo. "This is enormously powerful science."
Dow Agro will likely sign an exclusive commercial licensing agreement with Sangamo between now and October, paying it royalties on sales of products developed using zinc finger proteins. So far Dow Agro has paid Sangamo $20 million, including a $4 million equity investment. The first fruits of the partnership aren't expected for four more years. Dow is coy about its plans, but Peribere drops hints.
"What about dramatically improving the sugar content in sugarcane?" he asks. Dow Chemical, in a separate project, already plans to make polyethylene from sugarcane ethanol in Brazil. Upping the sugar content in the cane would lead to a higher yield of ethanol per acre. A second possibility: altering specific genes to make it easier to break down the lignin in the cell walls of corn leaves and stalks, with an eye to making so-called cellulosic ethanol out of the unused part of the plants. Dow Agro biologists have already accurately inserted genetic material into specific locations in maize and rapeseed genomes using Sangamo's technology.
Use of highly targeted gene-modification tricks comes at a fortuitous time. Biologists are unearthing a trove of genomic information about plants. The rice genome was fully mapped in 2005. Corn's rough DNA blueprint was released in February, and the soybean's DNA is being mapped now. With maps in place, Dow and Sangamo's zinc fingers can be aimed directly at the genetic locations that would play the biggest role in curtailing the recent and sure to be ongoing disruptions in food and biofuels supply. "We are at the Stone Age of plant biotechnology," says Peribere. "In 25 years we are going to be laughing about what we are doing now."
Zinc fingers may also offer a way to get some genetically altered foods through regulatory approval faster than before. The European Commission and armies of environmentalists battled Monsanto nearly to a standstill over its GM seeds, but thanks to pressing global grain demand, Monsanto eventually won approval in all the world's biggest markets. The knock against Monsanto's technology was the use of foreign genes, something that Peribere says zinc fingers can avoid. When zinc fingers are used to delete genetic material, the mechanism for doing so, called a zinc finger nuclease, does not remain in the plant for more than a few days. "Our expectation is that as you are not introducing anything that stays in the ,plant, this is going to be considered non-GMO [by regulators]," Peribere told analysts in December.
That remains to be seen. Greenpeace International, a vocal opponent of genetically modified crops, is skeptical that zinc fingers can evade the GMO labeling. "It's not 100% clear, but I think that most of this would still be considered GMO because you're introducing a new gene, even if [the finger] doesn't stay in the plant," says Greenpeace International scientist Janet Cotter. Friends of the Earth Europe, another anti-GMO group, says that the Sangamo technology may well turn out to be a type of genetic modification that it would oppose.
If, that is, Sangamo crops ever make it out into the field. Zinc fingers are still unproved outside the lab. Dana Carroll, a biochemist at the University of Utah who has licensed some research to Sangamo, has run fruit fly experiments using zinc finger nucleases, in which the flies' genomes were cut in unintended places apart from the target area. Sangamo and other researchers have worked to fix some of this errant DNA editing, but Carroll says it is impossible to know if all unintended cutting has been eliminated.
Says Peribere, who was initially highly skeptical: "It's early science for some of this. It's costly. But it is disruptive. That is why we have embarked upon it."
For decades plant biologists have used brute-force methods of genetic engineering to produce biotech seeds that kill bugs and withstand herbicides. One common method was to cover small gold particles with genetic material and shoot them into the nucleus of the plant cell with a pressure gun. Where the new DNA ended up was random. It might land in the middle of an important gene and inadvertently disrupt the plant's growth.
Zinc fingers make this procedure highly targeted. Each finger is typically about 30 amino acids long, with a variable section at the tip. Sangamo scientists have engineered a library of 10,000 fingers by tinkering with the variable region, designing it so that it will seek out, recognize and bind to a specific segment of DNA for a specific gene. Sangamo scientists tether to the zinc finger a protein that contains the instructions for the targeted gene: turn on, turn off, get louder, pipe down. The finger is the homing mechanism; the tethered protein delivers the payload.
To add or delete genes, Sangamo tethers to the zinc finger the nuclease enzyme that can make a break in a specific location of DNA. Cells naturally try to repair the broken DNA, and the zinc finger nucleases use this repair system to either delete a targeted gene or integrate new DNA. "It copies and pastes the donor DNA like a Word document, right into the break, exactly where you want it," explains Philip Gregory, Sangamo's vice president of research.
Before inking the research deal with Sangamo, Dow Agro scientists evaluated other, more widely studied genetic manipulation technologies. But Dow decided none had the breadth of capability that zinc fingers do. Two better-known alternatives, antisense and rna-interference, the latter of which is being used now by Monsanto, can silence or shut down genes but cannot turn them on or make them louder. "We wanted one technology that could do it all," says Peribere.
It has taken Sangamo more than a decade to get the technology into shape. Lanphier, 52, studied biochemistry at Knox College and joined Eli Lilly (nyse: LLY - news - people )'s business planning department in the 1980s, then worked at a string of small biotechs. In 1995, while at Somatix Therapy, a Bay Area gene therapy company, he decided he wanted to start something on his own and began digging for ideas. He came across a 1991 article on zinc finger proteins published in Science by Carl Pabo, then a structural biology professor at the Massachusetts Institute of Technology. Lanphier kept digging and found that a Nobel Prize-winning British molecular biologist, Aaron Klug, had done some pioneering work on zinc fingers, as had researchers at Johns Hopkins and the Scripps Research Institute.
Lanphier licensed Klug's patents and the patents from MIT, Hopkins and Scripps. He raised $17 million in venture capital and took Sangamo public in 2000.
Well off its speculative highs earlier in the decade, Sangamo now has a $500 million market value. This biotech in a sleepy office park may hold the key to better crops, more efficient biofuels and drugs to cure the most elusive diseases. But it will be several years, at the least, before it proves itself.
IPO market is stuck in neutral
NEW YORK (CNNMoney.com) -- The IPO market hasn't exactly been running at full throttle this year. And lately, it can't seem to get out of first gear.
There were a flurry of initial public offerings following the high-profile Visa IPO in March. But activity has slowed to a crawl as investors remain on edge.
So far this month, just 6 companies have debuted, according to the Greenwich, Conn.-based IPO research firm Renaissance Capital. Some firms have postponed their plans or nixed going public altogether. The pace is down sharply from the same month a year ago, when 32 companies went public.
"As far as the IPO market is concerned, we are at the bottom of a cycle," said John Fitzgibbon, founder of IPOScoop.com.
It shouldn't be a big surprise that investors have little interest in IPOs. Even though the markets have enjoyed a modest rebound in recent weeks, they are still struggling. So far this year, the tech-fueled Nasdaq composite is down 7.1% while the S&P 500 has fallen 5.3%.
Investor appetite for riskier new offerings is usually greatest when the markets are doing well.
Yet, those firms that have braved the public markets this year have done relatively well as a group. IPOs, on average, delivered a pretty satisfying 9% return, according to Renaissance Capital.
Those numbers, however, include a couple impressive debuts including that of Visa (V) and fertilizer producer Intrepid Potash (IPI). They are up 75% and 46% respectively from their offering prices.
Their performance masks some of the IPO casualties of recent weeks.
Shares of Verso Paper (VRS), which supplies coated paper to catalog and magazine publishers, have slipped 31% from their offering prices. And shares of solar energy company Real Goods Solar (RSOL) have declined 14%. Both firms went public earlier this month.
With investors growing increasingly picky about IPOs, the big banks that manage offerings for companies looking to go public have also grown nervous, said Kathleen Smith, a principal at Renaissance Capital, which also operates IPOHome.com. As more companies flop in their market debuts, that has led to more IPOs being shelved.
"Underwriters won't put their companies up if investors are getting negative returns," said Smith.
That's more bad news for investment banks. Many of them are already struggling because of subprime exposure. A further slump in IPO activity would lead to fewer underwriting fees, a lucrative business for Wall Street firms.
Looking ahead
Right now, just two companies are slated to go public in the next few weeks.
Liberty Lane Acquisition, which was expected to price this week, is a special purpose acquisition company, or SPAC. Those types of companies go public for the sole purpose of buying another company in the future, Liberty Lane plans to offer 35 million shares priced at $10 a share. The company will list on the Nasdaq under the ticker "LLACU."
The other offering on the calendar is Greek shipping firm Safe Bulkers, which is due to launch sometime next week. With the shipping industry performing quite well lately, investors have been eagerly awaiting this IPO. Safe Bulkers plans to offer 10 million shares, priced between $20 and $22 a share, under the ticker "SB."
While the short term outlook appears dreary, companies in some of the market's hottest sectors, such as oil, agriculture and shipping, could keep the IPO market chugging along in the near term, said Sal Morreale, who tracks public offerings for Cantor Fitzgerald.
"You have to have certain market trends to bring a deal out," said Morreale. "Right now the Street doesn't have an appetite for speculative-type deals."
And despite the current climate, plenty of companies are still looking to go public. Roughly 95 companies have filed for IPOs so far this year but haven't gone public yet, according to Renaissance Capital.
Many of those firms have a pretty good track record, notes IPOScoop.com's Fitzgibbon. As a result, we could see the IPO market come roaring back once the markets stabilize.
"Right now it is in limbo, but thank God Wall Street is cyclical," he said
There were a flurry of initial public offerings following the high-profile Visa IPO in March. But activity has slowed to a crawl as investors remain on edge.
So far this month, just 6 companies have debuted, according to the Greenwich, Conn.-based IPO research firm Renaissance Capital. Some firms have postponed their plans or nixed going public altogether. The pace is down sharply from the same month a year ago, when 32 companies went public.
"As far as the IPO market is concerned, we are at the bottom of a cycle," said John Fitzgibbon, founder of IPOScoop.com.
It shouldn't be a big surprise that investors have little interest in IPOs. Even though the markets have enjoyed a modest rebound in recent weeks, they are still struggling. So far this year, the tech-fueled Nasdaq composite is down 7.1% while the S&P 500 has fallen 5.3%.
Investor appetite for riskier new offerings is usually greatest when the markets are doing well.
Yet, those firms that have braved the public markets this year have done relatively well as a group. IPOs, on average, delivered a pretty satisfying 9% return, according to Renaissance Capital.
Those numbers, however, include a couple impressive debuts including that of Visa (V) and fertilizer producer Intrepid Potash (IPI). They are up 75% and 46% respectively from their offering prices.
Their performance masks some of the IPO casualties of recent weeks.
Shares of Verso Paper (VRS), which supplies coated paper to catalog and magazine publishers, have slipped 31% from their offering prices. And shares of solar energy company Real Goods Solar (RSOL) have declined 14%. Both firms went public earlier this month.
With investors growing increasingly picky about IPOs, the big banks that manage offerings for companies looking to go public have also grown nervous, said Kathleen Smith, a principal at Renaissance Capital, which also operates IPOHome.com. As more companies flop in their market debuts, that has led to more IPOs being shelved.
"Underwriters won't put their companies up if investors are getting negative returns," said Smith.
That's more bad news for investment banks. Many of them are already struggling because of subprime exposure. A further slump in IPO activity would lead to fewer underwriting fees, a lucrative business for Wall Street firms.
Looking ahead
Right now, just two companies are slated to go public in the next few weeks.
Liberty Lane Acquisition, which was expected to price this week, is a special purpose acquisition company, or SPAC. Those types of companies go public for the sole purpose of buying another company in the future, Liberty Lane plans to offer 35 million shares priced at $10 a share. The company will list on the Nasdaq under the ticker "LLACU."
The other offering on the calendar is Greek shipping firm Safe Bulkers, which is due to launch sometime next week. With the shipping industry performing quite well lately, investors have been eagerly awaiting this IPO. Safe Bulkers plans to offer 10 million shares, priced between $20 and $22 a share, under the ticker "SB."
While the short term outlook appears dreary, companies in some of the market's hottest sectors, such as oil, agriculture and shipping, could keep the IPO market chugging along in the near term, said Sal Morreale, who tracks public offerings for Cantor Fitzgerald.
"You have to have certain market trends to bring a deal out," said Morreale. "Right now the Street doesn't have an appetite for speculative-type deals."
And despite the current climate, plenty of companies are still looking to go public. Roughly 95 companies have filed for IPOs so far this year but haven't gone public yet, according to Renaissance Capital.
Many of those firms have a pretty good track record, notes IPOScoop.com's Fitzgibbon. As a result, we could see the IPO market come roaring back once the markets stabilize.
"Right now it is in limbo, but thank God Wall Street is cyclical," he said
Thursday, May 22, 2008
Agricultural chemicals rise
Agricultural chemicals follow Wall Street higher as jobless report spurs optimism
NEW YORK (AP) -- Shares of several agricultural chemical companies rose on Thursday, following the broader market higher after two sessions of steep declines.
Although oil prices set another trading record overnight, prices backed off a bit Thursday morning. Meanwhile, the Labor Department reported that the number of newly laid off workers filing for unemployment benefits declined last week to the lowest level in a month.
How shares of major agricultural chemical companies fared Thursday:
DuPont Co., up 31 cents to $48.47.
Dow Chemical Co., up 35 cents to $41.74.
Potash Corp. of Saskatchewan Inc., up $4.32, or 2.2 percent, to $199.91.
Mosaic Co., up $3.82, or 3.2 percent, to $124.50.
NEW YORK (AP) -- Shares of several agricultural chemical companies rose on Thursday, following the broader market higher after two sessions of steep declines.
Although oil prices set another trading record overnight, prices backed off a bit Thursday morning. Meanwhile, the Labor Department reported that the number of newly laid off workers filing for unemployment benefits declined last week to the lowest level in a month.
How shares of major agricultural chemical companies fared Thursday:
DuPont Co., up 31 cents to $48.47.
Dow Chemical Co., up 35 cents to $41.74.
Potash Corp. of Saskatchewan Inc., up $4.32, or 2.2 percent, to $199.91.
Mosaic Co., up $3.82, or 3.2 percent, to $124.50.
Canpotex Port Expansion Is yet Another Catalyst for Fertilizer
I have not written about fertilizer for a while, since the stocks have been digesting some huge gains (and we've been making money in other sectors such as infrastructure, coal, solar, metals). These potash producers still remain as my top holdings, although in reduced exposure. When the charts indicate they are ready to go, I'll be increasing exposure. For now, I'm keeping that allocation in cash, although the stocks are showing relative strength. I've been waiting patiently for a larger selloff in this group that never seems to happen. Hopefully soon. This is still a 5+ year story, until meaningful expansion of potash production occurs.
However, there will be multiple nearer term risks chiefly (a) Western governments eventually pushing away from biofuels under public pressure as others around the globe starve (b) increased input costs hurting margins and (c) price increases cannot continue at the pace it has in the past, or else fertilizer will be more valuable than Roger Maris baseball cards within a few years.
None of these are game changers, but they can (and will) affect sentiment. And if (b) and (c) happen in the right combination, you will begin to see degrading margins which will also cause panic among the masses. In the end, after a period of hyper growth, these companies are going to be cash flow machines. But lemmings will still panic during that conversion.
However, interesting news continues to percolate, and like much of the world's ports, it appears expansion is necessary to take on the increase in global trade (i.e. voracious appetite of the Far East) I don't have much to add to this story but there are some interesting quotes within. Note Canpotex is a consortium of Potash (POT), Mosaic (MOS), and Agrium (AGU).
Canpotex Ltd, the export marketing consortium for Canadian potash fertilizer producers, is looking at expanding its Pacific coast port facilities, the National Post newspaper said on Tuesday....is considering a project to almost double its shipping capacity with a $300 million to $500 million project, the paper said.
"We feel the fundamentals of our business have changed," said Steven Dechka, Canpotex's chief executive, cited in the report. "We feel we now have to be ready for the next 20 to 50 years," Dechka said at a fertilizer conference in Vienna.
Canpotex is considering 10 million tonnes of new capacity by expanding its terminal in Vancouver, British Columbia, or building a new terminal at the northern port of Prince Rupert or at Cherry Point in Washington state.
Potash Corp has announced plans to boost its production capacity to 17.2 million tonnes by 2015 from current levels of 10 million tonnes. (7 years to get 70% increase)
Mosaic plans to have 15.5 million tonnes of capacity over the next 12 years, an increase of 5.1 million tonnes. (12 years to get 50% increase)
Agrium wants to add about 800,000 tonnes of capacity to its 2.05 million tonnes of production in Saskatchewan, and is also examining whether to build a new mine.
Due to barriers of entry, and slow (and costly) expansion [Nov 16: Potash Expands Mine for $2 Billion], this still remains the widest moat in any "commodity" that I can find. But it's not quite the easy stock story it was a year ago before everyone jumped on board the fertilizer train.
However, there will be multiple nearer term risks chiefly (a) Western governments eventually pushing away from biofuels under public pressure as others around the globe starve (b) increased input costs hurting margins and (c) price increases cannot continue at the pace it has in the past, or else fertilizer will be more valuable than Roger Maris baseball cards within a few years.
None of these are game changers, but they can (and will) affect sentiment. And if (b) and (c) happen in the right combination, you will begin to see degrading margins which will also cause panic among the masses. In the end, after a period of hyper growth, these companies are going to be cash flow machines. But lemmings will still panic during that conversion.
However, interesting news continues to percolate, and like much of the world's ports, it appears expansion is necessary to take on the increase in global trade (i.e. voracious appetite of the Far East) I don't have much to add to this story but there are some interesting quotes within. Note Canpotex is a consortium of Potash (POT), Mosaic (MOS), and Agrium (AGU).
Canpotex Ltd, the export marketing consortium for Canadian potash fertilizer producers, is looking at expanding its Pacific coast port facilities, the National Post newspaper said on Tuesday....is considering a project to almost double its shipping capacity with a $300 million to $500 million project, the paper said.
"We feel the fundamentals of our business have changed," said Steven Dechka, Canpotex's chief executive, cited in the report. "We feel we now have to be ready for the next 20 to 50 years," Dechka said at a fertilizer conference in Vienna.
Canpotex is considering 10 million tonnes of new capacity by expanding its terminal in Vancouver, British Columbia, or building a new terminal at the northern port of Prince Rupert or at Cherry Point in Washington state.
Potash Corp has announced plans to boost its production capacity to 17.2 million tonnes by 2015 from current levels of 10 million tonnes. (7 years to get 70% increase)
Mosaic plans to have 15.5 million tonnes of capacity over the next 12 years, an increase of 5.1 million tonnes. (12 years to get 50% increase)
Agrium wants to add about 800,000 tonnes of capacity to its 2.05 million tonnes of production in Saskatchewan, and is also examining whether to build a new mine.
Due to barriers of entry, and slow (and costly) expansion [Nov 16: Potash Expands Mine for $2 Billion], this still remains the widest moat in any "commodity" that I can find. But it's not quite the easy stock story it was a year ago before everyone jumped on board the fertilizer train.
Wednesday, May 21, 2008
For Energy Plays Look to Flotek, Anadarko Petroleum
It was due and it was telegraphed but that didn’t make it fun or pretty. The drubbing in the stock market yesterday was something that had to happen and the fact that it hadn’t occurred sooner is the real surprise.
The S&P 500 was riding a four month high but the rebound was facilitated by the oversold circumstance the market was mired in earlier this year when it fell through a trapdoor. I think the market simply reached the crossroad where it's going to take a little more than being oversold to push through.
There was a silver lining yesterday and it was volume. I’ve griped during the entire rebound period about volume and a buyers' strike but the fact of the matter is sellers are still reluctant to pull the trigger. Sure, there was a heck of a lot more selling than buying yesterday, but the selling wasn’t anywhere near panic levels and considering how far and how fast the market has come on, certainly there was more than one legitimate excuse to bail.
Obviously one bad day out for investors that have been through the ringer isn’t going to get battle hardened investors to blink. I’m sure a lot of them squinted, however. We begin tomorrow with the S&P 500 hovering north of the 200-day moving average. The uptrend is intact but the index is nearing the key support point of 1,400. If that doesn’t hold then the last stand could come at 1,380. The flip side of this is the index holding above the bottom of the channel and rebounding. On the upside a move through 1,440 would be magnificent, especially after yesterday’s session. For the Dow, 12,800 is the pivotal swing point and the level to watch. At this point I think investors would be happy with sideways movement until there's clearer evidence things are getting better.
The Word from On High
After yesterday’s pile-on where legendary investors, one after another, echoed their opinions that there are still difficult times ahead, investors have mentally been ordered back to “Go” and they couldn’t collect $200.00. The fear is that the actual speedometer or major indices could retrace and somehow tumble back to the lows of February. Of course at this stage of the game some of those legends, while worthy of all praise and respect, still haven’t been elevated to deities. Although in the case of George Soros he does look like he might have posed for Michelangelo’s “Creation of Adam” of “The last Judgment”. There is no doubt that investors have been guessing as to the inflection point of the credit crisis and housing woes and maybe they’ve been wrong. The consequence of being wrong or early shouldn’t be punitive and that's why such optimism bubbled to the surface
I also think it would take a major disaster for equity markets to retest the lows and I happen to look forward to buying stocks on weakness. Yet I will concede the stock market is a long way from seeing a democratic blanket of buying, put the darts away, and be ready to buy stocks that may look and feel expensive even if there is a correction. This will be frustrating for so-called value investors, those folks that buy and hold stuff like drug company stocks because they change hands at discounted valuation metrics. I think the move could also be frustrating to the folks on Capitol Hill. Yesterday in the United States Senate the Committee on Homeland Security and Governmental Affairs took on the surging commodities market. In his opening statement the chairman of the committee, Joseph Lieberman, offered the following observations:
Consumers in low-income countries may spend as much as 80% of their income on food.
Somalia and 33 other nations are at risk of unrest that takes lives (World Bank).
Since 2003 investments in commodity index funds has surged to $260.0 billion from $13.0.
Essentially there was a series of testimony that more or less placed the blame for the surge in commodity prices on traders and speculators. There is no doubt that hot money is chasing performance but there are other factors, too, including lawmakers pushing for the use of food as fuel. It's a serious situation that deserves more than the normal rhetoric and finger-pointing from Congress. If it's only speculators then the situation will correct itself at some point but we know it’s a lot more complicated than nefarious and greedy traders manipulating the market and starving the world. Speaking of surging commodities, natural gas looks very compelling. I have to say my firm was getting waxed for months in this space which we loaded up on in the model portfolio in 2006. In fact we actually sent out an exit alert on Natural Gas Service Group (NGS) last month after achieving a 50% gain but now I regret being so impatient.
I think NGS will move higher along with Flotek (FTK) which has been an execution disaster but is oversold and finding a lot of buyers at this level. Another play in the space is Anadarko (APC) which does a little bit of everything but in my mind is a gas play, perhaps the best quality company in the space.
The S&P 500 was riding a four month high but the rebound was facilitated by the oversold circumstance the market was mired in earlier this year when it fell through a trapdoor. I think the market simply reached the crossroad where it's going to take a little more than being oversold to push through.
There was a silver lining yesterday and it was volume. I’ve griped during the entire rebound period about volume and a buyers' strike but the fact of the matter is sellers are still reluctant to pull the trigger. Sure, there was a heck of a lot more selling than buying yesterday, but the selling wasn’t anywhere near panic levels and considering how far and how fast the market has come on, certainly there was more than one legitimate excuse to bail.
Obviously one bad day out for investors that have been through the ringer isn’t going to get battle hardened investors to blink. I’m sure a lot of them squinted, however. We begin tomorrow with the S&P 500 hovering north of the 200-day moving average. The uptrend is intact but the index is nearing the key support point of 1,400. If that doesn’t hold then the last stand could come at 1,380. The flip side of this is the index holding above the bottom of the channel and rebounding. On the upside a move through 1,440 would be magnificent, especially after yesterday’s session. For the Dow, 12,800 is the pivotal swing point and the level to watch. At this point I think investors would be happy with sideways movement until there's clearer evidence things are getting better.
The Word from On High
After yesterday’s pile-on where legendary investors, one after another, echoed their opinions that there are still difficult times ahead, investors have mentally been ordered back to “Go” and they couldn’t collect $200.00. The fear is that the actual speedometer or major indices could retrace and somehow tumble back to the lows of February. Of course at this stage of the game some of those legends, while worthy of all praise and respect, still haven’t been elevated to deities. Although in the case of George Soros he does look like he might have posed for Michelangelo’s “Creation of Adam” of “The last Judgment”. There is no doubt that investors have been guessing as to the inflection point of the credit crisis and housing woes and maybe they’ve been wrong. The consequence of being wrong or early shouldn’t be punitive and that's why such optimism bubbled to the surface
I also think it would take a major disaster for equity markets to retest the lows and I happen to look forward to buying stocks on weakness. Yet I will concede the stock market is a long way from seeing a democratic blanket of buying, put the darts away, and be ready to buy stocks that may look and feel expensive even if there is a correction. This will be frustrating for so-called value investors, those folks that buy and hold stuff like drug company stocks because they change hands at discounted valuation metrics. I think the move could also be frustrating to the folks on Capitol Hill. Yesterday in the United States Senate the Committee on Homeland Security and Governmental Affairs took on the surging commodities market. In his opening statement the chairman of the committee, Joseph Lieberman, offered the following observations:
Consumers in low-income countries may spend as much as 80% of their income on food.
Somalia and 33 other nations are at risk of unrest that takes lives (World Bank).
Since 2003 investments in commodity index funds has surged to $260.0 billion from $13.0.
Essentially there was a series of testimony that more or less placed the blame for the surge in commodity prices on traders and speculators. There is no doubt that hot money is chasing performance but there are other factors, too, including lawmakers pushing for the use of food as fuel. It's a serious situation that deserves more than the normal rhetoric and finger-pointing from Congress. If it's only speculators then the situation will correct itself at some point but we know it’s a lot more complicated than nefarious and greedy traders manipulating the market and starving the world. Speaking of surging commodities, natural gas looks very compelling. I have to say my firm was getting waxed for months in this space which we loaded up on in the model portfolio in 2006. In fact we actually sent out an exit alert on Natural Gas Service Group (NGS) last month after achieving a 50% gain but now I regret being so impatient.
I think NGS will move higher along with Flotek (FTK) which has been an execution disaster but is oversold and finding a lot of buyers at this level. Another play in the space is Anadarko (APC) which does a little bit of everything but in my mind is a gas play, perhaps the best quality company in the space.
Top-Rated Stocks the Leaders Loathe
Momentum investors love to back companies with the wind in their sails. Contrarian investors typically pick up the cigar butts the market has tossed aside. So what do you call investors who turn against winners? Sourpusses? Shorts?
Not managing well
As a significant potash producer, and as the country's largest retail farm-store chain, Agrium has been one of the prime beneficiaries of the expanding production of ethanol. Even with some politicians calling for cutbacks in the program, because the voracious demand for corn is driving up prices and contributing to food shortages in various parts of the globe, there doesn't appear to be any end in sight to the ethanol boom. Agrium's CFO doesn't see the government having the will to do what would be tantamount to eliminating what he calls 5% of the U.S. gas supply -- at least not anytime soon.
As a result, potash producers such as Agrium, Potash Corp. of Saskatchewan (NYSE: POT), and Mosaic (NYSE: MOS) have been reaping the benefits by way of higher earnings. Farmers have been eager to boost production by adding beneficial nutrients to the soil to meet demand, and as a result, fertilizer companies have been reporting that their profits have doubled or tripled over the past year. Agrium expects its next earnings report to surpass its previous records.
Wits have taken to calling Potash Corp. of Saskatchewan the "Saudi Arabia of Potash," but no one is expecting any embargoes to be placed on fertilizer. Investors, in fact, are expecting a gusher of production to continue for all producers, including Agrium. CAPS player kingkamehameha sees the developing nations as an impetus for future growth:
Agrium is benefiting from the global demand for food in developing nations such as China, India and Russia. Fertilizer prices are soaring, and Agrium is one of the few companies in the world with significant market share. The US obsession with ethanol is also a plus for the company as it insures that prices for fertilizer will remain stable over the next year.
Although thinking Agrium will outperform the market, top-rated CAPS All-Star hondo928 notes that it and its fellow fertilizer companies do sport some fairly rich valuations at this point:
On [strictly] a relative level Agrium seems like a buy. Potash, Monsanto, and Mosaic have just been skyrocketing, and with [price-to-earnings ratios] of over 40 I just don't see how they can possibly be buys at this point. As far as earnings growth goes PEG is much better on Agrium at 1.3, while it's still not cheap, it's a good solid company, with much better fundamentals, the boom won't last forever, but I think that this is good for a few more percent at least.
Not managing well
As a significant potash producer, and as the country's largest retail farm-store chain, Agrium has been one of the prime beneficiaries of the expanding production of ethanol. Even with some politicians calling for cutbacks in the program, because the voracious demand for corn is driving up prices and contributing to food shortages in various parts of the globe, there doesn't appear to be any end in sight to the ethanol boom. Agrium's CFO doesn't see the government having the will to do what would be tantamount to eliminating what he calls 5% of the U.S. gas supply -- at least not anytime soon.
As a result, potash producers such as Agrium, Potash Corp. of Saskatchewan (NYSE: POT), and Mosaic (NYSE: MOS) have been reaping the benefits by way of higher earnings. Farmers have been eager to boost production by adding beneficial nutrients to the soil to meet demand, and as a result, fertilizer companies have been reporting that their profits have doubled or tripled over the past year. Agrium expects its next earnings report to surpass its previous records.
Wits have taken to calling Potash Corp. of Saskatchewan the "Saudi Arabia of Potash," but no one is expecting any embargoes to be placed on fertilizer. Investors, in fact, are expecting a gusher of production to continue for all producers, including Agrium. CAPS player kingkamehameha sees the developing nations as an impetus for future growth:
Agrium is benefiting from the global demand for food in developing nations such as China, India and Russia. Fertilizer prices are soaring, and Agrium is one of the few companies in the world with significant market share. The US obsession with ethanol is also a plus for the company as it insures that prices for fertilizer will remain stable over the next year.
Although thinking Agrium will outperform the market, top-rated CAPS All-Star hondo928 notes that it and its fellow fertilizer companies do sport some fairly rich valuations at this point:
On [strictly] a relative level Agrium seems like a buy. Potash, Monsanto, and Mosaic have just been skyrocketing, and with [price-to-earnings ratios] of over 40 I just don't see how they can possibly be buys at this point. As far as earnings growth goes PEG is much better on Agrium at 1.3, while it's still not cheap, it's a good solid company, with much better fundamentals, the boom won't last forever, but I think that this is good for a few more percent at least.
Top-Rated Stocks the Leaders Loathe
Momentum investors love to back companies with the wind in their sails. Contrarian investors typically pick up the cigar butts the market has tossed aside. So what do you call investors who turn against winners? Sourpusses? Shorts?
Not managing well
As a significant potash producer, and as the country's largest retail farm-store chain, Agrium has been one of the prime beneficiaries of the expanding production of ethanol. Even with some politicians calling for cutbacks in the program, because the voracious demand for corn is driving up prices and contributing to food shortages in various parts of the globe, there doesn't appear to be any end in sight to the ethanol boom. Agrium's CFO doesn't see the government having the will to do what would be tantamount to eliminating what he calls 5% of the U.S. gas supply -- at least not anytime soon.
As a result, potash producers such as Agrium, Potash Corp. of Saskatchewan (NYSE: POT), and Mosaic (NYSE: MOS) have been reaping the benefits by way of higher earnings. Farmers have been eager to boost production by adding beneficial nutrients to the soil to meet demand, and as a result, fertilizer companies have been reporting that their profits have doubled or tripled over the past year. Agrium expects its next earnings report to surpass its previous records.
Wits have taken to calling Potash Corp. of Saskatchewan the "Saudi Arabia of Potash," but no one is expecting any embargoes to be placed on fertilizer. Investors, in fact, are expecting a gusher of production to continue for all producers, including Agrium. CAPS player kingkamehameha sees the developing nations as an impetus for future growth:
Agrium is benefiting from the global demand for food in developing nations such as China, India and Russia. Fertilizer prices are soaring, and Agrium is one of the few companies in the world with significant market share. The US obsession with ethanol is also a plus for the company as it insures that prices for fertilizer will remain stable over the next year.
Although thinking Agrium will outperform the market, top-rated CAPS All-Star hondo928 notes that it and its fellow fertilizer companies do sport some fairly rich valuations at this point:
On [strictly] a relative level Agrium seems like a buy. Potash, Monsanto, and Mosaic have just been skyrocketing, and with [price-to-earnings ratios] of over 40 I just don't see how they can possibly be buys at this point. As far as earnings growth goes PEG is much better on Agrium at 1.3, while it's still not cheap, it's a good solid company, with much better fundamentals, the boom won't last forever, but I think that this is good for a few more percent at least.
Not managing well
As a significant potash producer, and as the country's largest retail farm-store chain, Agrium has been one of the prime beneficiaries of the expanding production of ethanol. Even with some politicians calling for cutbacks in the program, because the voracious demand for corn is driving up prices and contributing to food shortages in various parts of the globe, there doesn't appear to be any end in sight to the ethanol boom. Agrium's CFO doesn't see the government having the will to do what would be tantamount to eliminating what he calls 5% of the U.S. gas supply -- at least not anytime soon.
As a result, potash producers such as Agrium, Potash Corp. of Saskatchewan (NYSE: POT), and Mosaic (NYSE: MOS) have been reaping the benefits by way of higher earnings. Farmers have been eager to boost production by adding beneficial nutrients to the soil to meet demand, and as a result, fertilizer companies have been reporting that their profits have doubled or tripled over the past year. Agrium expects its next earnings report to surpass its previous records.
Wits have taken to calling Potash Corp. of Saskatchewan the "Saudi Arabia of Potash," but no one is expecting any embargoes to be placed on fertilizer. Investors, in fact, are expecting a gusher of production to continue for all producers, including Agrium. CAPS player kingkamehameha sees the developing nations as an impetus for future growth:
Agrium is benefiting from the global demand for food in developing nations such as China, India and Russia. Fertilizer prices are soaring, and Agrium is one of the few companies in the world with significant market share. The US obsession with ethanol is also a plus for the company as it insures that prices for fertilizer will remain stable over the next year.
Although thinking Agrium will outperform the market, top-rated CAPS All-Star hondo928 notes that it and its fellow fertilizer companies do sport some fairly rich valuations at this point:
On [strictly] a relative level Agrium seems like a buy. Potash, Monsanto, and Mosaic have just been skyrocketing, and with [price-to-earnings ratios] of over 40 I just don't see how they can possibly be buys at this point. As far as earnings growth goes PEG is much better on Agrium at 1.3, while it's still not cheap, it's a good solid company, with much better fundamentals, the boom won't last forever, but I think that this is good for a few more percent at least.
Go Ahead, Blame Biofuels
A switch from fossil fuels to ethanol and its kin diverts resources from food production, leading to hunger and destabilization of farming
In the beginning it seemed like a good idea. Instead of burning dirty fossil fuels, we can power our cars using plant-based "biofuels." So said proponents of such fuel alternatives as ethanol. It would be like switching from a diet of greasy hamburgers to pure, sweet green tea.
Most environmentalists went along with the idea, and governments around the globe adopted policies mandating biofuel use and supporting the burgeoning new industry with subsidies. Multinational agribusiness giants, including Archer Daniels Midland (ADM), Cargill, Bunge (BG), and Monsanto (MON), rolled up their sleeves and prepared their coffers for a major cash influx. So did the biotechnology industries, expecting an opportunity to market genetically engineered crops for fuel, even where their food crops remain unpopular.
Auto manufacturers breathed a sigh of relief: With an alternative fuel available, people wouldn't bother to drive less. Big Oil, with an eye on future profits, ramped up investment and a major greenwash campaign.
An Even Worse Mess
A few lonesome voices suggested there could be negative consequences.
Lester Brown, from the Earth Policy Institute, for example, predicted that "the stage is now set for direct competition for grain between the 800 million people who own automobiles and the world's 2 billion poorest people." Others pointed out that agriculture itself is a major contributor to greenhouse gas emissions and hence not to be relied upon as a solution to climate change. Nongovernmental organizations in Latin America, Africa, the European Union, and the U.S. called for moratoriums on incentives and targets that mandated biofuel use.
Now we are faced with the predicted mess. The push for biofuels has forced people off their land, caused deforestation, sucked aquifers dry, and increased the use of fertilizers and agrichemicals. To top it off, a study published recently in Science showed that biofuels result in far more, rather than less, greenhouse gas emissions.
As if that were not enough, food prices have skyrocketed. The price of wheat has risen 130% in the past year, and staples overall have gone up 80% in the past two years. Some of that has happened in leaps and bounds: Rice rose 31% in the course of just a week or so in late March. Hungry and angry people are taking to the streets.
Pricey Oil Means Pricey Food
Apparently the problem has multiple causes. High oil prices have made everything from fertilizer to tractors to trucking more expensive.
(Proponents of biofuels say that blending ethanol with gasoline is helping to bring the price of fuel down, but ethanol delivers less energy per unit volume than gasoline, so consumers have to buy more).
Increased demand for meat, which takes a lot of grain to produce, is another contributing factor. (But this trend has been under way for years and cannot account for the recent price surges.) The faltering economy has driven investors to speculate in commodities, which destabilizes markets. While global grain reserves are depleted, severe weather conditions have reduced grain production in some places like Australia. Nonetheless, we achieved global record production of grains last year! Unfortunately, the price of food is now bound more closely than ever to fossil fuel and biofuel markets, making it unaffordable for much of the human population.
Farmers eager to make a decent living will plant the most profitable crops and sell them for whatever purpose is most profitable. Ethanol is profitable. Estimates are that in 2008 a full one-third to one-half of the U.S. corn harvest—about 140 million tons of corn—will be turned into fuel (offsetting a mere 6% of U.S. transport fuel).
A Shortage of Soy
The decisions of farmers have global ramifications. For example, American farmers have switched from soy to corn varieties most suited for ethanol (not food). The shortfall in soy resulted in a soy price increase, which is now driving farmers in South America to switch to soy production. As a result, grazing lands are being converted to soy and cattle farmers are clearing the Amazon rainforest to create new grazing land.
This brings us full circle back to the issue of climate change. As the food crisis has brought biofuels into question, there is a swelling chorus of voices claiming that the next generation of technologies will avert competition for food by using cellulose derived from nonfood plants grown on "marginal" land. Wood is considered a promising alternative. It is not.
We are faced with an enormous and expanding human population to feed, using dwindling freshwater resources, increasingly degraded soils, and expensive fertilizer and chemicals. On top of that, deforestation has proceeded to the point where forests are unable to provide their essential climate-regulating functions: If biofuels are manufactured from wood, the demand for wood products, already unsustainable, will skyrocket. The world's forests cannot feed biofuel refineries as well as supply increasing demand for heat and electricity generation, pulp, paper, and other wood products. Forests, and therefore the climate, will suffer.
Relief of Hunger
In the short term, it is not enough to apologize while millions are starving to death. We must pony up the funds to alleviate the food crisis immediately. The U.N. has requested an additional $500 million to $700 million in aid. (The Iraq war is costing the U.S. $350 million every day).
In the long term, we must take agriculture out of the hands of Big Business and put it back into the hands of people who need more than ever to be able to feed themselves on their own terms. ADM and Cargill reported record profits, jumping 42% and 86%, respectively, in the past quarter alone. While they once again reap the gains of bad agriculture policy, biofuels may go down as the most misguided of all: In the words of the U.N. Special Rapporteur on the Right to Food, overreliance on biofuels is indeed "a crime against humanity."
Rachel Smolker is a researcher and campaigner with the Global Justice Ecology Project and the Global Forest Coalition. Her interest is in climate change, forest protection, agriculture, and especially the impact of biofuels development on these issues. She holds a PhD in biology from the University of Michigan, has a background in field biology, and lives in Vermont.
In the beginning it seemed like a good idea. Instead of burning dirty fossil fuels, we can power our cars using plant-based "biofuels." So said proponents of such fuel alternatives as ethanol. It would be like switching from a diet of greasy hamburgers to pure, sweet green tea.
Most environmentalists went along with the idea, and governments around the globe adopted policies mandating biofuel use and supporting the burgeoning new industry with subsidies. Multinational agribusiness giants, including Archer Daniels Midland (ADM), Cargill, Bunge (BG), and Monsanto (MON), rolled up their sleeves and prepared their coffers for a major cash influx. So did the biotechnology industries, expecting an opportunity to market genetically engineered crops for fuel, even where their food crops remain unpopular.
Auto manufacturers breathed a sigh of relief: With an alternative fuel available, people wouldn't bother to drive less. Big Oil, with an eye on future profits, ramped up investment and a major greenwash campaign.
An Even Worse Mess
A few lonesome voices suggested there could be negative consequences.
Lester Brown, from the Earth Policy Institute, for example, predicted that "the stage is now set for direct competition for grain between the 800 million people who own automobiles and the world's 2 billion poorest people." Others pointed out that agriculture itself is a major contributor to greenhouse gas emissions and hence not to be relied upon as a solution to climate change. Nongovernmental organizations in Latin America, Africa, the European Union, and the U.S. called for moratoriums on incentives and targets that mandated biofuel use.
Now we are faced with the predicted mess. The push for biofuels has forced people off their land, caused deforestation, sucked aquifers dry, and increased the use of fertilizers and agrichemicals. To top it off, a study published recently in Science showed that biofuels result in far more, rather than less, greenhouse gas emissions.
As if that were not enough, food prices have skyrocketed. The price of wheat has risen 130% in the past year, and staples overall have gone up 80% in the past two years. Some of that has happened in leaps and bounds: Rice rose 31% in the course of just a week or so in late March. Hungry and angry people are taking to the streets.
Pricey Oil Means Pricey Food
Apparently the problem has multiple causes. High oil prices have made everything from fertilizer to tractors to trucking more expensive.
(Proponents of biofuels say that blending ethanol with gasoline is helping to bring the price of fuel down, but ethanol delivers less energy per unit volume than gasoline, so consumers have to buy more).
Increased demand for meat, which takes a lot of grain to produce, is another contributing factor. (But this trend has been under way for years and cannot account for the recent price surges.) The faltering economy has driven investors to speculate in commodities, which destabilizes markets. While global grain reserves are depleted, severe weather conditions have reduced grain production in some places like Australia. Nonetheless, we achieved global record production of grains last year! Unfortunately, the price of food is now bound more closely than ever to fossil fuel and biofuel markets, making it unaffordable for much of the human population.
Farmers eager to make a decent living will plant the most profitable crops and sell them for whatever purpose is most profitable. Ethanol is profitable. Estimates are that in 2008 a full one-third to one-half of the U.S. corn harvest—about 140 million tons of corn—will be turned into fuel (offsetting a mere 6% of U.S. transport fuel).
A Shortage of Soy
The decisions of farmers have global ramifications. For example, American farmers have switched from soy to corn varieties most suited for ethanol (not food). The shortfall in soy resulted in a soy price increase, which is now driving farmers in South America to switch to soy production. As a result, grazing lands are being converted to soy and cattle farmers are clearing the Amazon rainforest to create new grazing land.
This brings us full circle back to the issue of climate change. As the food crisis has brought biofuels into question, there is a swelling chorus of voices claiming that the next generation of technologies will avert competition for food by using cellulose derived from nonfood plants grown on "marginal" land. Wood is considered a promising alternative. It is not.
We are faced with an enormous and expanding human population to feed, using dwindling freshwater resources, increasingly degraded soils, and expensive fertilizer and chemicals. On top of that, deforestation has proceeded to the point where forests are unable to provide their essential climate-regulating functions: If biofuels are manufactured from wood, the demand for wood products, already unsustainable, will skyrocket. The world's forests cannot feed biofuel refineries as well as supply increasing demand for heat and electricity generation, pulp, paper, and other wood products. Forests, and therefore the climate, will suffer.
Relief of Hunger
In the short term, it is not enough to apologize while millions are starving to death. We must pony up the funds to alleviate the food crisis immediately. The U.N. has requested an additional $500 million to $700 million in aid. (The Iraq war is costing the U.S. $350 million every day).
In the long term, we must take agriculture out of the hands of Big Business and put it back into the hands of people who need more than ever to be able to feed themselves on their own terms. ADM and Cargill reported record profits, jumping 42% and 86%, respectively, in the past quarter alone. While they once again reap the gains of bad agriculture policy, biofuels may go down as the most misguided of all: In the words of the U.N. Special Rapporteur on the Right to Food, overreliance on biofuels is indeed "a crime against humanity."
Rachel Smolker is a researcher and campaigner with the Global Justice Ecology Project and the Global Forest Coalition. Her interest is in climate change, forest protection, agriculture, and especially the impact of biofuels development on these issues. She holds a PhD in biology from the University of Michigan, has a background in field biology, and lives in Vermont.
Monday, May 19, 2008
Opening Glance: Agricultural chemicals down
Agricultural chemicals open lower, as Wall Street trades flat
NEW YORK (AP) -- Shares of several agricultural chemical companies traded mostly down on Monday, as Wall Street traded flat on anticipation of a report on April leading economic indicators.
Also, Microsoft Corp. has revived talks with Yahoo Inc. about a potential deal to boost the companies' position in the online search and advertising markets.
Here's how shares of major agricultural chemical companies fared Monday:
DuPont Co., down 6 cents to $49.57.
Dow Chemical Co., down 18 cents to $42.70.
Potash Corp. of Saskatchewan Inc., up $1.30 to $208.30.
Mosaic Co., down 17 cents to $129.49.
NEW YORK (AP) -- Shares of several agricultural chemical companies traded mostly down on Monday, as Wall Street traded flat on anticipation of a report on April leading economic indicators.
Also, Microsoft Corp. has revived talks with Yahoo Inc. about a potential deal to boost the companies' position in the online search and advertising markets.
Here's how shares of major agricultural chemical companies fared Monday:
DuPont Co., down 6 cents to $49.57.
Dow Chemical Co., down 18 cents to $42.70.
Potash Corp. of Saskatchewan Inc., up $1.30 to $208.30.
Mosaic Co., down 17 cents to $129.49.
Windy City Trades - Fast Money Recap (5/16/08)
Deere (DE), Potash (POT), Monsanto (MON), Dryships (DRYS), Diana Shipping (DSX), DuPont (DD), McDonald's (MCD), and Burger King (BKC)
Najarian still believes in the agriculture story but noted Deere was weak in forestry and construction. He thinks the trade is over in POT and MON. Instead of agriculture, he would buy DRYS and DSX. Adami calls DD a solid synthetic ag play. Finerman is concerned with volatility in the sector and would sit out of ag. Moving to the food industry, Macke prefers BKC to Chicago's own MCD, which is a solid company, but whose story is "juiced." Najarian likes both companies but agrees BKC is cheaper and has more upside. Adami prefers MCD as an international play.
Najarian still believes in the agriculture story but noted Deere was weak in forestry and construction. He thinks the trade is over in POT and MON. Instead of agriculture, he would buy DRYS and DSX. Adami calls DD a solid synthetic ag play. Finerman is concerned with volatility in the sector and would sit out of ag. Moving to the food industry, Macke prefers BKC to Chicago's own MCD, which is a solid company, but whose story is "juiced." Najarian likes both companies but agrees BKC is cheaper and has more upside. Adami prefers MCD as an international play.
POT of Gold - Cramer's Lightning Round (5/16/08)
Potash (POT): "Potash is not just about renewable energy; they're about getting more out of an acre of land. I'm not backing down from this one."
Sunday, May 18, 2008
Deere & Company: Long-Term Buy on Dips
Deere & Company (DE) just reported a decent quarter (see conference call transcript) and is now a buy on any dips simply due to its positioning in one of the hottest secular growth stories I've ever seen: agriculture.
Deere & Company makes tractors, farm equipment, integrated agricultural management systems, and irrigation equipment, just to name a few. When you think of agriculture and farming, Deere & Co is one of the first names that come to mind (and, rightfully so). Their bright green and yellow logo can be seen all over the United States and world. They have been dominating the agriculture industry for years and plan on doing so for the infinite future.
With the recent bull market in agriculture, it would be stupid not to include a name such as DE on your watch list. Sure, everyone is more interested in the seeds and fertilizers as the boom continues, but don't forget about DE in the process. As farmers lavish in high commodity prices such as wheat and corn, they now have more money to put back towards improving their farm. Sure, they will most likely buy seeds and fertilizers first, BUT, there's only so much of that they can buy. With limited farmland, they can't buy millions of seeds without the necessary amount of farmland to plant them all. So, naturally, they use the rest of the money to upgrade their equipment.
That's where DE comes in. They make so many different farming machines it would take a paragraph just to list them out. They have dominated that market share. Deere is one of the most trusted names out there when it comes to tractors and other various farming machines. With the recent agricultural boom, you can bet good money that DE has seen a ton of their products head off to farms across the USA. This is a long term buy simply because the food and famine issues are not going to go away anytime soon. Not to mention that the high crop and fertilizer prices just play into the whole story. There is high demand and limited supply of nearly everything. Until this gets corrected and producers can start producing enough to meet demand, DE and other ag names are a buy.
If you want to see a solid performing stock, just take a look at the 1 year chart of DE, revealing a beautiful uptrend. I said at the beginning of this analysis that DE is a buy on dips and this chart shows you exactly why. Look at every major dip on the DE chart. Literally every single dip has been a great buying opportunity, and the one we've just seen is no different. If you got into DE in January when the markets were abysmal down at 73, then kudos to you - that takes balls of steel. As Buffett says, buy when there's blood in the streets.
DE trends up in a practically perfect channel, following its 50 day and 200 day moving averages as supports. Right click here and open in new window - this is about as good as it gets for a long-term chart. DE is a solid company within a solid sector. Agriculture is going nowhere in the near future as farmland becomes scarcer and commodity prices continue to rise. This is simply a buy on dips in a long term name, simple as that.
Why is DE such a solid buy on dips name? Well its partially due to the fact that they are just a solid, well-run company. Turning to fundamentals, we get a better idea how financially stable DE is. With a trailing PE of 21 and a forward PE of 14, DE's valuation is good. A PEG ratio of 1.88 might indicate that DE is done growing, but that is far from the case. The recent run-up in agriculture stocks due to the ag-bull market is skewing these numbers. DE's machinery is selling like hotcakes. With operating margins of 11% and a return on equity of 24%, DE is a solid player in the agriculture game. Its margins could be better, but those should increase over time. DE also has a price to sales ratio of only 1.57, signaling supreme undervaluation (any PS ratio under 5 = undervalued). DE has a market cap of $34 billion and growing.
Overall, DE posts sounds numbers in a thriving sector. Growth is definitely one factor not as apparent in the numbers. This agricultural bull market will surely see DE's orders continue to surge, yet the PEG reflects a growth story that is stagnant. This just goes to show that sometimes the numbers are skewed and you have to look beyond the numbers and into the current market environment. This is exactly the case with DE. With quarterly revenue growth of 20% and quarterly earnings growth of 52%, DE would be pretty much trading at a discount to its earnings growth rate. This is just another reason to own this name on pullbacks.
Looking at the Institutional ownership aspect of DE, we see that it includes some big names. Major shareholders of DE include: Vanguard, Barclays, T. Rowe Price, BlackRock, and Chase.
Analyst coverage of DE reveals an astonishing consensus among some of the big investment banks and research firms. Citigroup, Cleveland Research Company, and Wachovia ALL rate DE 5 stars. Merrill Lynch is the laggard of the group, ranking DE a respectable 4 stars. Clearly the analysts are fans of DE's strong position in the agriculture sector. They all expect DE to significantly outperform the market with less than average risk over the next 6 months. And, given the secular bull market that agriculture is right now, you could argue that DE has less than average risk for the entire next year (based on all the estimates agriculture names have been giving).
So, its really quite simple. The secular growth story DE is in right now gives you reason enough to own it. But, as if that was not enough, you could also own it for strong fundamentals, or a very strong uptrending chart. Commodity prices have skied higher recently with agricultural commodities such as corn and wheat experiencing big run-ups. Farmers directly benefit from this as they receive higher prices for the crops they harvest. In turn, the farmers use this increased cash flow to plant and harvest more crops. Thus, the seed producers, the fertilizer producers, and the machinery producers all benefit. It is one giant domino effect. Deere is a direct beneficiary of higher commodity prices and an agricultural bull market. And, the best part is, this ag-bull market is not going anywhere. Farmland is scarce and farmers are growing as fast as they can to try and meet demand.
Agriculture is a sector that will see continued strength in the coming year and DE is one of the best names in the sector. Buy this name on dips simply because it works. Just look at the chart, it speaks volumes. Buy on dips and savor the ag secular growth story. --seeking alpha
Deere & Company makes tractors, farm equipment, integrated agricultural management systems, and irrigation equipment, just to name a few. When you think of agriculture and farming, Deere & Co is one of the first names that come to mind (and, rightfully so). Their bright green and yellow logo can be seen all over the United States and world. They have been dominating the agriculture industry for years and plan on doing so for the infinite future.
With the recent bull market in agriculture, it would be stupid not to include a name such as DE on your watch list. Sure, everyone is more interested in the seeds and fertilizers as the boom continues, but don't forget about DE in the process. As farmers lavish in high commodity prices such as wheat and corn, they now have more money to put back towards improving their farm. Sure, they will most likely buy seeds and fertilizers first, BUT, there's only so much of that they can buy. With limited farmland, they can't buy millions of seeds without the necessary amount of farmland to plant them all. So, naturally, they use the rest of the money to upgrade their equipment.
That's where DE comes in. They make so many different farming machines it would take a paragraph just to list them out. They have dominated that market share. Deere is one of the most trusted names out there when it comes to tractors and other various farming machines. With the recent agricultural boom, you can bet good money that DE has seen a ton of their products head off to farms across the USA. This is a long term buy simply because the food and famine issues are not going to go away anytime soon. Not to mention that the high crop and fertilizer prices just play into the whole story. There is high demand and limited supply of nearly everything. Until this gets corrected and producers can start producing enough to meet demand, DE and other ag names are a buy.
If you want to see a solid performing stock, just take a look at the 1 year chart of DE, revealing a beautiful uptrend. I said at the beginning of this analysis that DE is a buy on dips and this chart shows you exactly why. Look at every major dip on the DE chart. Literally every single dip has been a great buying opportunity, and the one we've just seen is no different. If you got into DE in January when the markets were abysmal down at 73, then kudos to you - that takes balls of steel. As Buffett says, buy when there's blood in the streets.
DE trends up in a practically perfect channel, following its 50 day and 200 day moving averages as supports. Right click here and open in new window - this is about as good as it gets for a long-term chart. DE is a solid company within a solid sector. Agriculture is going nowhere in the near future as farmland becomes scarcer and commodity prices continue to rise. This is simply a buy on dips in a long term name, simple as that.
Why is DE such a solid buy on dips name? Well its partially due to the fact that they are just a solid, well-run company. Turning to fundamentals, we get a better idea how financially stable DE is. With a trailing PE of 21 and a forward PE of 14, DE's valuation is good. A PEG ratio of 1.88 might indicate that DE is done growing, but that is far from the case. The recent run-up in agriculture stocks due to the ag-bull market is skewing these numbers. DE's machinery is selling like hotcakes. With operating margins of 11% and a return on equity of 24%, DE is a solid player in the agriculture game. Its margins could be better, but those should increase over time. DE also has a price to sales ratio of only 1.57, signaling supreme undervaluation (any PS ratio under 5 = undervalued). DE has a market cap of $34 billion and growing.
Overall, DE posts sounds numbers in a thriving sector. Growth is definitely one factor not as apparent in the numbers. This agricultural bull market will surely see DE's orders continue to surge, yet the PEG reflects a growth story that is stagnant. This just goes to show that sometimes the numbers are skewed and you have to look beyond the numbers and into the current market environment. This is exactly the case with DE. With quarterly revenue growth of 20% and quarterly earnings growth of 52%, DE would be pretty much trading at a discount to its earnings growth rate. This is just another reason to own this name on pullbacks.
Looking at the Institutional ownership aspect of DE, we see that it includes some big names. Major shareholders of DE include: Vanguard, Barclays, T. Rowe Price, BlackRock, and Chase.
Analyst coverage of DE reveals an astonishing consensus among some of the big investment banks and research firms. Citigroup, Cleveland Research Company, and Wachovia ALL rate DE 5 stars. Merrill Lynch is the laggard of the group, ranking DE a respectable 4 stars. Clearly the analysts are fans of DE's strong position in the agriculture sector. They all expect DE to significantly outperform the market with less than average risk over the next 6 months. And, given the secular bull market that agriculture is right now, you could argue that DE has less than average risk for the entire next year (based on all the estimates agriculture names have been giving).
So, its really quite simple. The secular growth story DE is in right now gives you reason enough to own it. But, as if that was not enough, you could also own it for strong fundamentals, or a very strong uptrending chart. Commodity prices have skied higher recently with agricultural commodities such as corn and wheat experiencing big run-ups. Farmers directly benefit from this as they receive higher prices for the crops they harvest. In turn, the farmers use this increased cash flow to plant and harvest more crops. Thus, the seed producers, the fertilizer producers, and the machinery producers all benefit. It is one giant domino effect. Deere is a direct beneficiary of higher commodity prices and an agricultural bull market. And, the best part is, this ag-bull market is not going anywhere. Farmland is scarce and farmers are growing as fast as they can to try and meet demand.
Agriculture is a sector that will see continued strength in the coming year and DE is one of the best names in the sector. Buy this name on dips simply because it works. Just look at the chart, it speaks volumes. Buy on dips and savor the ag secular growth story. --seeking alpha
Why the Stock Market Is Going Up
It's a stock-market conundrum: The economy is barely growing, oil prices keep climbing, housing remains in a funk -- and yet stocks are rebounding.
Wall Street often goes in a different direction from Main Street, of course, largely because stock prices are bets on the future value of companies, as opposed to a report card on their operations and profits today. The market can climb when the business environment is rough, if there are signs that the future looks more promising.
But now -- with the Dow Jones Industrial Average up 11% from its March low, after a 1.9% gain last week -- it's too early to say the economic outlook is brightening. Financial pressure is growing on consumers. And corporations aren't looking much better: First-quarter earnings for companies in the Standard & Poor's 500-stock index dropped 26% compared with the same period last year, the third consecutive quarter of falling profits, something not seen in almost seven years.
It all means that investors shouldn't throw caution to the wind.
A Relief Rally
Behind the recent stock-market strength: relief that the economy isn't collapsing and hope that the downturn will be short and shallow, followed by an upturn in the next six months or so.
Aggressive steps by the government -- including lower interest rates, low-cost loans to investment banks and fiscal-stimulus checks in the mail to millions of Americans -- have helped keep the financial system afloat and could re-energize the economy, bulls say.
"The economy has not turned out as bad as most feared," says James Paulsen, chief investment officer at Wells Capital Management. "The unemployment rate is still low, job losses are much less than past recessions and profits -- outside of banks -- have remained stronger than thought."
Last week's advance by the Dow industrials narrows their year-to-date drop to 2.1%. The Nasdaq Composite Index gained 3.4% last week, trimming its 2008 loss to 4.7%.
Still, Jason Trennert, chief investment strategist and managing partner at Strategas Research Partners, doubts that the economy and the market are out of the woods.
"The need for consumers to repair their balance sheets," by cutting spending and debt, "probably means the recovery will be a mirage," Mr. Trennert says. "If one believes the economy will experience a double-dip recession -- as we do -- the current rally, although strong, could fade as we enter 2009."
Many hedge funds and other sophisticated investors also remain wary, and some are building up cash reserves, concerned that the current economic doldrums may last longer than many anticipate.
The weakness in corporate profits has been partly offset by a weakening dollar -- which makes U.S. goods less expensive to foreign buyers and inflates earnings booked outside the U.S. But the greenback has been rallying a bit, amid signs that the Federal Reserve's interest-rate cuts may be on hold.
Avoid Treasurys?
The best course for investors, according to a number of advisers: Ditch the safest investments, which don't do well as hope returns to the market.
Investors should "stay away from high-quality bonds" such as U.S. Treasurys, Mr. Paulsen says, because their yields are not high enough to provide ample compensation. He's also wary of energy-related shares, which have soared this year but aren't as attractive if the dollar stabilizes.
It's also likely too early to get aggressive and buy financial shares, which could see another leg down, many advisers say.
Strength and Growth
Instead, investors should focus on well-run companies with impressive growth outlooks, especially those focused on foreign economies likely to continue growing.
Both Mr. Paulsen and Mr. Trennert are fans of technology shares. Mr. Trennert notes that tech companies have "tons of cash and very little debt, and may be the biggest surprise outperformer."
Spending by corporations, such as in the telecommunications world, remains resilient. That's one reason analysts at Goldman Sachs call Amdocs a "must own" stock. The company provides customer-care and billing services for telecom companies, among other businesses. The stock has fallen in the past year but now trades for about 13 times next year's expected earnings, a reasonable level. The company is expected to grow profits 17% in the next year.
Other analysts like Terra Industries, a leading producer of nitrogen used for fertilizer. It has seen soaring profits and cash flow as more farmers plant corn to take advantage of higher corn prices. Terra recently expanded a share buyback program and initiated a dividend. And even though the stock is up a heady 140% in the past year, it's still trading at less than 10 times its expected earnings for the next 12 months.
Another reasonably priced stock seeing growth abroad is Eaton, an industrial-equipment maker that's expected to see a 21% rise in profits over the next year.
Jack Ablin, chief investment officer at Harris Private Bank in Chicago, advises investors to favor discount and mid-tier retailers, such as Wal-Mart Stores and Family Dollar Stores, rather than upscale stores like Nordstrom, Coach and Ralph Lauren, in part because stimulus checks aren't being sent to wealthier consumers.
"It's unlikely many of these checks will turn up at Tiffany," Mr. Ablin says.
Wall Street often goes in a different direction from Main Street, of course, largely because stock prices are bets on the future value of companies, as opposed to a report card on their operations and profits today. The market can climb when the business environment is rough, if there are signs that the future looks more promising.
But now -- with the Dow Jones Industrial Average up 11% from its March low, after a 1.9% gain last week -- it's too early to say the economic outlook is brightening. Financial pressure is growing on consumers. And corporations aren't looking much better: First-quarter earnings for companies in the Standard & Poor's 500-stock index dropped 26% compared with the same period last year, the third consecutive quarter of falling profits, something not seen in almost seven years.
It all means that investors shouldn't throw caution to the wind.
A Relief Rally
Behind the recent stock-market strength: relief that the economy isn't collapsing and hope that the downturn will be short and shallow, followed by an upturn in the next six months or so.
Aggressive steps by the government -- including lower interest rates, low-cost loans to investment banks and fiscal-stimulus checks in the mail to millions of Americans -- have helped keep the financial system afloat and could re-energize the economy, bulls say.
"The economy has not turned out as bad as most feared," says James Paulsen, chief investment officer at Wells Capital Management. "The unemployment rate is still low, job losses are much less than past recessions and profits -- outside of banks -- have remained stronger than thought."
Last week's advance by the Dow industrials narrows their year-to-date drop to 2.1%. The Nasdaq Composite Index gained 3.4% last week, trimming its 2008 loss to 4.7%.
Still, Jason Trennert, chief investment strategist and managing partner at Strategas Research Partners, doubts that the economy and the market are out of the woods.
"The need for consumers to repair their balance sheets," by cutting spending and debt, "probably means the recovery will be a mirage," Mr. Trennert says. "If one believes the economy will experience a double-dip recession -- as we do -- the current rally, although strong, could fade as we enter 2009."
Many hedge funds and other sophisticated investors also remain wary, and some are building up cash reserves, concerned that the current economic doldrums may last longer than many anticipate.
The weakness in corporate profits has been partly offset by a weakening dollar -- which makes U.S. goods less expensive to foreign buyers and inflates earnings booked outside the U.S. But the greenback has been rallying a bit, amid signs that the Federal Reserve's interest-rate cuts may be on hold.
Avoid Treasurys?
The best course for investors, according to a number of advisers: Ditch the safest investments, which don't do well as hope returns to the market.
Investors should "stay away from high-quality bonds" such as U.S. Treasurys, Mr. Paulsen says, because their yields are not high enough to provide ample compensation. He's also wary of energy-related shares, which have soared this year but aren't as attractive if the dollar stabilizes.
It's also likely too early to get aggressive and buy financial shares, which could see another leg down, many advisers say.
Strength and Growth
Instead, investors should focus on well-run companies with impressive growth outlooks, especially those focused on foreign economies likely to continue growing.
Both Mr. Paulsen and Mr. Trennert are fans of technology shares. Mr. Trennert notes that tech companies have "tons of cash and very little debt, and may be the biggest surprise outperformer."
Spending by corporations, such as in the telecommunications world, remains resilient. That's one reason analysts at Goldman Sachs call Amdocs a "must own" stock. The company provides customer-care and billing services for telecom companies, among other businesses. The stock has fallen in the past year but now trades for about 13 times next year's expected earnings, a reasonable level. The company is expected to grow profits 17% in the next year.
Other analysts like Terra Industries, a leading producer of nitrogen used for fertilizer. It has seen soaring profits and cash flow as more farmers plant corn to take advantage of higher corn prices. Terra recently expanded a share buyback program and initiated a dividend. And even though the stock is up a heady 140% in the past year, it's still trading at less than 10 times its expected earnings for the next 12 months.
Another reasonably priced stock seeing growth abroad is Eaton, an industrial-equipment maker that's expected to see a 21% rise in profits over the next year.
Jack Ablin, chief investment officer at Harris Private Bank in Chicago, advises investors to favor discount and mid-tier retailers, such as Wal-Mart Stores and Family Dollar Stores, rather than upscale stores like Nordstrom, Coach and Ralph Lauren, in part because stimulus checks aren't being sent to wealthier consumers.
"It's unlikely many of these checks will turn up at Tiffany," Mr. Ablin says.
U.S. Farmers Fret Over Fuel
American consumers are spent--and the Midwest is no exception. Even though the agriculture-rich region has been sprouting robust farming incomes lately, Midwestern farmers are just as worried about high energy prices as the rest of the country.
Economic growth in the Midwest faltered this month, according to the Rural Mainstreet Index, which hit its lowest point since its inception in 2005. The Index fell to 42.6 from 47.5 in April, with 50 indicating a neutral rating.
The monthly index was created by City National Bank in Greeley, Neb., and is drawn from a survey of rural bank chief executives in Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming.
According to the survey, robust farm income has kept agricultural equipment sales high, despite falling below April's reading of 71.4 at its current level of 69.3.
But the profit surge hasn't helped retail sales.
"Farmers are just not spending a lot of their elevated income with local merchants, except for agriculture-equipment dealers," said Creighton University Economist Ernie Goss.
On Thursday, Standard & Poor's upgraded shares of Tractor Supply (nasdaq: TSCO - news - people ), a Brentwood, Tenn.-based farming lifestyle retailer and equipment supplier, to buy from hold on favorable long-term growth prospects.
Farming and ethanol-related stocks had a tumultuous day of trading on Friday on the heels of Senate's passage of the farm bill on Thursday (See: Ethanol For Everyone!). Investors scrambled to dig into the profit-rich industry, leaving the sector's stocks largely mixed at the close of Friday's trading session.
Ethanol producer Aventine Renewable Energy Holdings (nyse: AVR - news - people ) closed ahead by 60 cents or 1.0%, at $59.69 but BioFuel Energy (nasdaq: BIOF - news - people ) shed 20 cents, or 5.6%, closing at $3.35.
Tractor company, Deere (nyse: DE - news - people ), had a rocky day of trading before closing down by 8 cents, or 0.1%, at $83.53. AGCO (nyse: AG - news - people ), which sells a range of agricultural equipment including tractors, combines, sprayers and diesel engines, closed ahead by 60 cents, or 1.0%, at $59.69 a share.
Fertilizer companies, helped by high grain and crop prices, continued their months-long rally as farmers buy up the stinky stuff in bulk, hoping to up crop yields (See: Delayed Reward For Fertilizer Stocks). Bunge (nyse: BG - news - people ), which operates agribusiness and food segments in addition to fertilizer production, gained $7.15, or 6.1%, during Friday trading, closing at $124.48. Potash (nyse: POT - news - people ) added $2.85, or 1.4%, at $207 and nitrogen fertilizer producer, Terra Nitrogen (nyse: TNH - news - people ), closed ahead by $1.49, or 1.0%, at $149.53.
Economic growth in the Midwest faltered this month, according to the Rural Mainstreet Index, which hit its lowest point since its inception in 2005. The Index fell to 42.6 from 47.5 in April, with 50 indicating a neutral rating.
The monthly index was created by City National Bank in Greeley, Neb., and is drawn from a survey of rural bank chief executives in Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming.
According to the survey, robust farm income has kept agricultural equipment sales high, despite falling below April's reading of 71.4 at its current level of 69.3.
But the profit surge hasn't helped retail sales.
"Farmers are just not spending a lot of their elevated income with local merchants, except for agriculture-equipment dealers," said Creighton University Economist Ernie Goss.
On Thursday, Standard & Poor's upgraded shares of Tractor Supply (nasdaq: TSCO - news - people ), a Brentwood, Tenn.-based farming lifestyle retailer and equipment supplier, to buy from hold on favorable long-term growth prospects.
Farming and ethanol-related stocks had a tumultuous day of trading on Friday on the heels of Senate's passage of the farm bill on Thursday (See: Ethanol For Everyone!). Investors scrambled to dig into the profit-rich industry, leaving the sector's stocks largely mixed at the close of Friday's trading session.
Ethanol producer Aventine Renewable Energy Holdings (nyse: AVR - news - people ) closed ahead by 60 cents or 1.0%, at $59.69 but BioFuel Energy (nasdaq: BIOF - news - people ) shed 20 cents, or 5.6%, closing at $3.35.
Tractor company, Deere (nyse: DE - news - people ), had a rocky day of trading before closing down by 8 cents, or 0.1%, at $83.53. AGCO (nyse: AG - news - people ), which sells a range of agricultural equipment including tractors, combines, sprayers and diesel engines, closed ahead by 60 cents, or 1.0%, at $59.69 a share.
Fertilizer companies, helped by high grain and crop prices, continued their months-long rally as farmers buy up the stinky stuff in bulk, hoping to up crop yields (See: Delayed Reward For Fertilizer Stocks). Bunge (nyse: BG - news - people ), which operates agribusiness and food segments in addition to fertilizer production, gained $7.15, or 6.1%, during Friday trading, closing at $124.48. Potash (nyse: POT - news - people ) added $2.85, or 1.4%, at $207 and nitrogen fertilizer producer, Terra Nitrogen (nyse: TNH - news - people ), closed ahead by $1.49, or 1.0%, at $149.53.
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