Time to Invest in Agriculture

While the housing and financial stock markets have seen their fair share of ups and downs throughout the years, agriculture stock has remained steady and is currently increasing.

"The crop farming sector has been relatively profitable in the past several years while the general economy has gone through a great deal of turmoil. As financial difficulties became apparent in 2008, most publicly traded companies saw their stock prices decline," said Gary Schnitkey, ag economist, University of Illinois.

Investing in the agriculture industry can help capitalize farms and fertilizer producers, increase food supplies and generate profits in the process. We’ve already seen that the prices of soybeans, wheat and corn are increasing and major fertilizers like phosphate, sulfur and ammonia have been increasing in price since mid-2010.

Currently, the world is seeing a demand for quality food from rapidly developing countries such as Brazil, India and China. In addition, the global population in emerging markets continues to increase with a demand for more and better-quality food.

According to Investopedia, the rationale for increased agricultural stock prices is that farmers will need the best seeds, fertilizers, animal feed and other agricultural inputs to produce the largest yields possible. Therefore, the companies that are selling products to the farmers should see an increase in their stocks.

An agriculture.com article reports that since 2008, market-value changes have been greater for AgIndex, an index that represents the market value of agriculture companies, than for the S&P 500, an index that tracks the market values of 500 large companies in the United States. Like crop farms, many agricultural firms have performed well in the period of increased commodity prices.

The AgIndex comprises a group of 21 publicly traded companies that fit into one of five sectors (agriculture.com):
  1. Fertilizer: Companies involved in the manufacturing and distribution of fertilizers (Agrium Inc., CF Industries, Intrepid Potash, Mosaic Company, and Potash Corporation)
  2. Equipment: Companies involved in the manufacturing of agricultural equipment (AGCO Corporation, Art’s Way Manufacturing Company, Caterpillar Inc., CNH Global, Deere & Company, Kubota Corporation and Lindsay Corporation)
  3. Seed and genetics: Companies that produce seeds (Monsanto and Syngenta)
  4. Crop protection: Companies that produce products aiding plant growth (Dow Chemical, DuPont and FMC Corporation)
  5. First processor: Companies that are the first processors of corn and soybeans (Andersons, Archer Daniels Midland, Bunge and Corn Products International)
An article at www.dailyfinance.com reports that investors note that expanding populations that tend to shift to more resource-intensive food products are fueling agricultural demand. In a presentation this past year, hedge fund Passport Capital stated that the world population "is predicted to increase by more than one-third, to a staggering nine billion people by 2054."

"We believe the circumstances of the current global recession—including tight credit and reduced asset values—have created a particularly attractive entry point for investors in the agriculture industry," said a representative from Passport Capital.

As the need for feeding more and more people throughout the world continues to increase, the outlook for agriculture investments moving forward will be favorable.

Have you invested in any agriculture stocks? What has been your experience? Do you have any recommendations to share?

Photo obtained from: getmyhomesvalue.com

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