Commodities & Metals

Ag, Fertilzer, Potash Benefiting From Russia's Wheat Woes (ADM, DE, MON, POT, SYT, MOS, TNH, MOO)

News related to the reduced wheat crop in Russia, followed by a ban on Russian wheat exports, have sent wheat prices along a steeply rising trajectory. Rising prices for wheat have also had an impact on agribusiness, equipment, and fertilizer prices and corresponding share prices for stocks in companies that produce these goods.  This situation has effectively reinvigorated the Ag-sector.  Among the stocks we’re watching are Archer Daniels Midland Co. (NYSE: ADM), Deere & Co. (NYSE: DE), Monsanto Co. (NYSE: MON), Potash Corp. (NYSE: POT), Syngenta AG (NYSE: SYT), Mosaic Co. (NYSE: MOS), and Terra Nitrogen Co., L.P. (NYSE: TNH). The Market Vectors Agribusiness ETF (NYSE: MOO) has also been moving up on rising commodity prices.

The prospect of a bumper wheat crop in the US that could be large enough to cover the several million metric tons of wheat that Russia bans from the market likely will act as a drag on wheat prices until the harvest is in. Fertilizer and seed stocks are likely to benefit from the coming planting season for winter wheat and from next spring’s planting, both of which could be larger than this year.

Our technical analysis affiliate, Adam Hewison of INO, has a charting audio-video analysis that discusses how huge this move has been in wheat prices and where the could go from the high levels seen currently.

ADM opened the week at $27.75 and hit a weekly high this morning of $30.98 before giving some back on news that wheat prices haven fallen about 5% from yesterday. The Thomson/First Call mean target price for ADM is $35.71. ADM could make a run at that price. The stock’s 52-week high is $33.00, set back in November. Today’s ADM share price is about $2 higher than the same day a year ago, so the price target is within range.

Deere’s mean target price is $72.60 and that is well within range. Shares opened the week at $67.27 and set a new 52-week high yesterday of $69.10 before falling back about $2 currently. Again, the coming planting seasons are likely to improve demand for Deere’s equipment as the prospect of higher prices gives farmers a boost.  Monsanto started the week at $58.39 and climbed above $62 before falling back today to around $60. The mean target for this stock is $60.34. Look for new targets any day now.

Potash Corp. opened the week at $106.61 and rose more than 10% to more than $116 before falling back to around $113 today. The mean price target for the shares is $121.98, which is below the stock’s 52-week high of $128.42 reached in March. Potash, like the other fertilizer makers, should get a boost from the November planting season and the price target is definitely within reach.

Syngenta shares started the week at $45.44 and hit a weekly high today of $49.21 before falling to around $48.50. The mean price target for the stock is $52.83. Whether the company threatens that price depends on getting a boost in European sales, which is hard to predict at this point.

Mosaic opened this week at $47.08 and climbed to a high of $52.78 today, before retreating to around $51. The target for the stock is $55.72, well below the 52-week high of $68.28, so probably within reach.

Terra Nitrogen, which is a master limited partnership that is now owned by CF Industries (NYSE:CF), opened the week at $83/common unit before jumping to $94.71 this morning. The shares are now trading at around $94, mostly on the strength of a very positive quarterly earnings report. The stock’s 52-week high is $115.62, and there is no mean price target established for the stock. Using the high as a bar, that’s a pretty high one to get over, requiring a jump of more than 20% in the share price.

Market Vectors Agribusiness ETF opened the week at $42.12 and posted a weekly high of $44.12 earlier today. Shares are trading at around $43.50 currently. Six of the stocks covered in this report are included in the ETF, accounting for about 41% of the fund’s total holdings. The three largest holdings are Mosaic at 8.12% of assets, Syngenta at 8.07%, and Monsanto at 7.92%.

Whether this situation in Russia is short-lived or will pose longer-term issues is one thing.  The moves seen in many of these companies is another issue entirely.

Paul Ausick

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