While the headlines focus on the problems stemming from the European Union, Greece, and the potential of a slowing economy, there is plenty of bullish news out there that longer-term investors can use. For those investors interested in the agriculture commodity space, the recent crop report points to higher prices. However, with the recent market rout, investors currently have the opportunity to pick up some good assets that could strengthen portfolio for years to come.
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Lower Yields on the Horizon
Despite the slowing economy, the hot weather in America's heartland is having its way with agricultural commodity prices. The main growing region of the Midwest has experienced the hottest summer since 1955 and according to the USDA that will result in smaller harvests entering the dog days. Overall, the U.S. Department of Agriculture cut its corn crop estimate by 4.1%, soybeans by 5.2%, and spring-wheat production by 5.2%. These amounts were all revised lower than predictions made in July. The surprise downgrade has caught many analysts off-guard. A survey posted by Bloomberg showed that the average estimate of 20 analysts was 536 million bushels of spring-wheat. The USDA's predicts that number could total just 522 million bushels. Both soybean and corn estimates showed similar gaps.
The other bullish take-away from the USDA report is declining amount of declining planted acreage. The organization cut nearly 500,000-planted acres from Montana as well as an additional 450,000 acres from North Dakota from its forecasts. Again, weather was cited as the reason. According to the National Weather Service, parts of North Dakota, the nation's largest wheat producer, had tripled the amount of normal rainfall during the late spring/early summer. Farm real estate and cropland in the Northern plains has seen acreage prices rise nearly 17.2% over the last year and some analysts see continued increases in prices as less usable acreage is available.
The United States is a major exporter of these three key agricultural commodities and these setbacks to production and harvest amounts will greatly affect world prices. As world populations continued to increase and emerging markets clamor for more food, prices will undoubtedly increase. China is already on pace to purchase a record five million metric tons of corn this year, up from about two million tons in 2010. To satisfy its demand for wheat, imports into China will need to rise by more than 30% this year.
Buying Some Ag
As investors dumped risk over the last few weeks, the agriculture sector fell equally as hard. However, given the USDA crop report, many analysts suggest that ag related equities could see their prices rise over the next few months. Now could be the best time to add the sector to a portfolio. Both the Market Vectors Agribusiness ETF (NYSE:MOO) and IQ Global Agribusiness Small Cap ETF (NYSE:CROP) can be used to add exposure. However, they aren't the only ways. Here are a few other picks:
While Deere (NYSE:DE) gets most of investor attention when it comes to tractors, there are plenty of other manufacturers seeing gains. Dutch firm CNH Global NV (NYSE:CNH), through its Case IH and New Holland brands, continues to expand rapidly into emerging markets. Similarly AGCO (NASDAQ:AGCO) has been implementing high-tech solutions into its tractors, including soil data collection systems and automatic steering.
The recent weather problems in the Heartland, along with last year's drought/flooding in Russia and Australia, help underscore the need for GMO seeds and better fertilizers. The trio of Syngenta (NYSE:SYT), Monsanto (NYSE:MON) and DuPont (NYSE:DD) allow investors to tap into the best of the modified seed producers. While the Global X Fertilizers/Potash ETF (Nasdaq:SOIL) tracks 29 different firms associated with the sector, including leaders Potash Corp. of Saskatchewan (NYSE:POT) and Agrium (NYSE:AGU).
The Bottom Line
Despite all the bad news facing the markets, there have been some bullish reports. The recent USDA crop survey is one such tidbit. For investors, the recent market rout can provide the perfect opportunity to add some ag equities like Jefferies CRB Global Agriculture (NASDAQ:CRBA) to their portfolios. (Dividend capture strategies provide an alternative investment approach to income seeking investors. Check out How To Use The Dividend Capture Strategy.)
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