Higher ethanol, potash demand, ag-super-mergers, surging food prices… and now an ETF crossing the $2 billion in assets mark.  You have to ask if a bubble is being formed in agriculture.  Today came news from Van Eck Global that its Market Vectors Agribusiness ETF (NYSE: MOO), the most targeted ETF solely to agriculture and farming that holds real share assets, has now reached the $2 billion mark in assets.  Befo
re you think about this just on an ETF basis, there are direct and indirect ties here to Potash Corporation of Saskatchewan (NYSE: POT), Monsanto Company (NYSE: MON), Archer-Daniels-Midland Company (NYSE: ADM), The Mosaic Company  (NYSE: MOS), and many more companies.

What Van Eck tied to the growth of its ETF that tracks the DAXglobal® Agribusiness Index is that agriculture remains a fundamental cornerstone of the world economy.   Also cited was that basic demand is growing with the overall population and as personal income is growing. Chemicals and equipment were included, but also things like biofuel adding demand ahead.

Potash Corporation of Saskatchewan (NYSE: POT) has been THE catalyst for this sector behind the return of the global food demand story now that BHP Billiton plc (NYSE: BHP) has decided to try to acquire it.  With other rumors about a break-up and/or about it negotiating with other buyers, investors want to trade POT.  At $148.50 the merger-arbitrage is actually negative because so many investors are betting on a higher price than the formal $130.00 bid on the table.  The current market cap is now $44 billion.  52-week trading range here is $83.85 to $153.29.  Analyst targets do not really matter because so many downgrades came now that an arbitrage premium exists.  If you trust the Thomson Reuters estimates, which is hard to do after such a merger premium is there and after downgrades, it trades at 26-times expected 2010 earnings and at 19-times expected 2011 earnings expectations.

The Mosaic Company (NYSE: MOS) is often considered “The Smaller Potash Corp.” by investors.  While there are some differences, Mosaic hit 52-week highs today and its range of the last year is now $37.68 to $68.64.  When its earnings hit last week, shares were around $61.50 before the latest surge.  Valuations are elevated but not at nosebleed levels as the stock trades closer to 19-times next year’s earnings.  If Potash Corp. does manage to secure a higher bid, one might even be able to argue that this is cheap in comparison.  Still, Mosaic now has a $30 billion market cap.  The problem is that Thomson Reuters still lists the average analyst price target right above $63.50.