"And no matter what happens with the economy or subprime mortgages, "people will still eat.""
--------------------------------------------------------- Hot demand pushing agriculture stocks
RICHARD BLACKWELL
February 14, 2008
One of the hottest sectors in the market continues to be agriculture stocks, with two key companies releasing earnings yesterday that underline the strength in the sector.
Calgary-based Agrium Inc., which produces and sells fertilizers, chemicals and seed, reported record profit of $172-million in its fourth quarter, a huge turnaround from a year-ago loss of $62-million. Meanwhile, farm equipment maker Deere & Co. of Moline, Ill, said it earned $369-million (U.S.) in its first quarter ended Jan. 31, a 54-per-cent jump from $239-million a year ago.
Both companies said they've benefited from booming demand from farmers, who are enjoying high grain prices amid intense demand for agricultural products.
Their results come on top of Tuesday's announcement from St. Louis-based Monsanto Co. that it is increasing its profit forecast for 2008 because of strong demand for corn seed and its Roundup herbicide. Print Edition - Section Front
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Shares in those three companies, like others in agriculture, have risen dramatically over the past year. Agrium has returned 50 per cent in the past 12 months, Deere 69 per cent, and Monsanto has more than doubled.
Among the best performers is fertilizer maker Potash Corp. of Saskatchewan Inc., whose stock is almost 1½ times the price it was a year ago. Grain handler Viterra Inc. (formerly Saskatchewan Wheat Pool) is also up 50 per cent, while PhosCan Chemical Corp. has tripled its year-ago price.
Analyst Paul D'Amico of TD Newcrest said there's no sign of the bubble bursting for agricultural stocks in the current environment, as valuations still appear to be reasonable. Unlike some other high-growth sectors, agriculture is "transparent," he said, with information available on crop prices, fertilizer inventories and demographics. "It's one of those unique situations where there really isn't anything bad going on."
But not everyone sees the agriculture boom as an entirely good news story. Donald Coxe, global portfolio strategist at Bank of Montreal, said the huge demand for food is pushing the world close to a global food catastrophe.
There's just not enough feed grain capacity to supply the increased global appetite for meat and dairy products, he said. "This is the single biggest risk facing the world other than nuclear war, because we're going to have to have great growing weather in all the major regions of the world year after year, [along with] massive capital investment in farming to increase yields."
One consequence of this crisis is that companies helping to increase the food supply are doing spectacularly well, making them core investments for anyone's portfolio, Mr. Coxe said. "When demand exceeds supply, everybody is going to make a buck."
And no matter what happens with the economy or subprime mortgages, "people will still eat."
