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Ag stocks leading the pack
Rising prices for grain, farm land, crop inputs and other sectors are signs of the recent buoyancy of the ag economy. Now, there's another signal of the sector's performance.
The stock prices for publicly traded ag-related companies have been trending higher than the stock market in general, a sign that the agricultural economy has weathered the recession better than most sectors, according to University of Illinois ag economist Gary Schnitkey.
"The crop farming sector has been relatively profitability 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," Schnitkey says. "As a group, the market values of publicly traded firms within the AgIndex exceeded those of S&P 500 in the last five years. Since 2008, market value changes have been larger for AgIndex than for the S&P 500. Like crop farms, many agricultural firms have performed well in the period of higher commodity prices."
The "AgIndex" comprises a group of 21 publicly traded companies that fit into 1 of 5 sectors, Schnitkey says:
- The fertilizer sector contains companies involved in the manufacture and distribution of fertilizers and includes Agrium Inc., CF Industries, Intrepid Potash, Mosaic Company, and Potash Corporation.
- The equipment sector contains companies involved in the manufacture of agricultural equipment and includes AGCO Corporation, Art’s Way Manufacturing Company, Caterpillar Inc., CNH Global, Deere & Company, Kubota Corporation, and Lindsay Corporation.
- The seed & genetics sector contains companies that produce seeds and includes Monsanto and Syngenta.
- The crop protection sector includes companies that produce products aiding plant growth and includes Dow Chemical, DuPont, and FMC.
- The first processor sector contains companies that are the first processors of corn and soybeans and include Andersons, Archer Daniels Midland, Bunge, and Corn Products International.
"Each quarter, each company's market capitalization was summed to arrive at total market value for companies within the AgIndex. The total market value was then divided by a number so that the AgIndex value equaled 100 at the beginning of the 1st quarter of 2007. Values for the AgIndex were found for the beginning of each quarter from the beginning of the first quarter 2007 until the beginning of the second quarter 2011," Schnitkey says. "Note that both the AgIndex and S&P 500 are based only on market values and do not include dividends in their calculations. As a result, the index reflects returns only from changes in market values. For both the AgIndex and S&P 500, the index values understate total returns."
Though he says the values among AgIndex stocks vary quite a bit, Schnitkey says as a group, they outperformed their macroeconomic peers, though the trend wasn't carbon-copied for every stock in the group.
"The sector with the highest increase from 2007 through 2010 was the fertilizer sector, more than doubling market values. The equipment sector has the second highest increase with a 51% increase followed by seed and genetics with a 37% increase. Strong sales of equipment and seed existed over the past several years, partially due to higher farm incomes and increasing acreages in row crop production," Schnitkey says.
"These firms supply products to farmers, who have generally had above-average incomes. The sector that had the lowest market value increase from 2007 was the first processor sector. This sector purchases inputs from grain farms and higher commodity prices may have played a role in lower market values," he adds.