A Final Look At Agriculture Stocks

This year has been a roller coaster ride for many agriculture stocks. As 2009 began, many companies benefited from the industry's tailwinds that were created by the boom in grain prices. However, prices collapsed and farmers deferred purchases, highlighting that agriculture stocks were not immune to Mr. Market's wrath. As the end of the year approached, however, a revised favorable outlook again helped companies head into December with favorable tailwinds.

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Strength in Size
The performance of two of the most dominantly entrenched agriculture plays during this recession is a testament to the long-term resilience of the industry. Heading into the final month of market trading, Deere (NYSE:DE) and Caterpillar (NYSE:CAT) are up 40% and 30% for the year, respectively, easily outperforming the S&P. While both names suffered declines in profitability, the strength of their operations enabled them to go through the worst economic environment since the Great Depression without having to make any capital structure changes. A couple of years from now, the dominance of this industry will prove very valuable. (To learn more about depression and recession, read Recession And Depression: They Aren't So Bad.)

Feeding the Masses
My favorite agriculture sector continues to be fertilizers. Fertilizers have had an excellent year, despite the precipitous decline in fertilizer prices that took hold this year. Dominant fertilizer names like Potash (NYSE:POT) and Agrium (NYSE:AGU) have valuable assets that would take years, billions of dollars and lots of environmental approval to replicate. However, both have delivered in 2009. By December, shares in Potash were up over 60%, while Agrium had increased by nearly 70%. Even the Market Vectors Agribusiness ETF (NYSE:MOO), a great collection of the major agriculture players, is up nearly 60% over the same period.

Looking Forward
The fundamentals of the agriculture industry continue to look very strong over the next several years. What started in 2009 could be the beginning of a very successful run for the quality names in this space.

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