Chemical And Fertilizer Stocks Are Leading Agriculture Stocks Higher

| February 22, 2011 | 0 Comments

Round one of “food price inflation” profits have already been made.  And the next round of profits should be even bigger.

In particular, I like one group of stocks.  Their sales and profits should soar to new heights this year.  I’ll tell you who they are in a minute…

But first I have to tell you why I’m not happy about them making all of this money.

You see, I grew up in America’s heartland (or -flyover country- for anyone who isn’t from there).  For generations, my family grew corn, wheat, soybeans, and hay in the Platte River valley in central Nebraska.

I know firsthand the challenges farming presents.  For the two decades I was around farming, I heard more about Willie Nelson singing at Farm Aid concerts than booming agricultural commodity markets.

In fact, it’s such a dramatic change that I can hardly believe it’s the same industry I grew up around.

That’s why I took great pleasure in watching US farm income surge in 2010.  And it’s why I’m excited to see the latest USDA farm income forecast for this year.

The USDA is projecting net farm income to be $94.7 billion.  That’s nearly a 20% increase from last year.

As profitability soars to its highest level in years, it’s driving farmland prices through the roof.  Farm business real estate is forecast to go up 6.3% this year.

Clearly, it’s a good time to be a farmer.

And here’s the most impressive stat of all… Farm income is surging despite production costs projected to jump by $20 billion!

I’m usually not happy to see input costs surge so much in a single year. It’s usually bad news for farmers.  It’s a sign farmers are about to get burned by the Agricultural Chemical and Fertilizer companies.

You see, these companies will charge much higher prices for seeds, chemicals, and fertilizer this year.  And as we move into the spring planting season, I’m expecting these higher prices to drive up Agricultural Chemical and Fertilizer stocks.

I think we’ll see stocks like Potash (POT), Monsanto (MON), Intrepid Potash (IPI), and Mosaic (MOS) lead Agriculture stocks higher this year.

Here’s the silver lining…

Despite rising input costs, farmers shouldn’t get burned by them this year.  Heavy international demand for US crops should keep commodity prices elevated.

Just look at what’s happening in China right now.  Corn and soybean imports are blowing away estimates…

In fact, China’s corn imports could quadruple this year.

According to Terry Vinduska, Chairman of the US Grains Council, “…the government normally keeps [corn] stocks at 30% [of yearly usage] but they are currently a little over 5%, which may lead to imports of 3m-9m tonnes.”

And that’s not all… China’s soybean imports surged 26% year-on-year in January to over 5 million tons.

You see, it’s all part of a larger trend in China.

The country is facing constraints in arable land and water.  According to Francis Tuan with USDA’s Foreign Agriculture Service, “the [Chinese] government has chosen to focus its agriculture in two ways: staple food crops such as rice and oilseeds and value-added products [like fruits and vegetables]”.

In other words, China’s plan is to import more land-intensive agricultural commodities like corn, soybeans, cotton, and sugar.  That’s great news for US farmers.  It should keep prices for those commodities high.

But it’s even better news for the Agricultural Chemical and Fertilizer companies.  I think they’ll benefit the most from higher commodity prices in the long run.


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Category: Commodities

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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