“Jim Rogers is very bullish on agriculture. Could you suggest some equities which would give good exposure to this theme? Many thanks.”
Eoin Treacy's view Thank
you for this question which others may also have an interest in. There have
been a number of people touting the merits of commodities in an inflationary
environment over the last couple of weeks. However the more pressing short-term
issue is the impact of the CFTC squeeze on commodity speculators through aggressive
In normal circumstances, commodity exchanges raise margin requirements when prices have accelerated higher. This is done to ensure margins reflect a suitable percentage of prices and to maintain an orderly market. On this occasion the CFTC has mandated margin increases for all CME traded contracts concurrently. Such a blanket order has had the effect of threatening speculator positions and has put additional pressure on the commodity complex.
The Continuous Commodity Index has been trending lower since April 2011. It moved to a new reaction low today and while somewhat oversold in the short-term a sustained move above 600 would be required to break the progression of lower rally highs and question the consistency of the downtrend.
Downward pressure in the commodity complex is deterring investors from aggressively purchasing most agriculture related equities. Of the fertilizer shares, closely held Terra Nitrogen LP continues to unwind its overbought condition relative to the MA. The share yields 6.88% and has a solid record of dividend increases. While still declining, the dividend should help to cushion the fall. Provided it finds support in the region of the 200-day MA, the medium-term upside can probably be given the benefit of the doubt.
CVR Partners LP was spun off by CVR Energy last year and currently yields 8.25%. It is also pulling back at present and will need to find support in the region of $25 if the progression of higher reaction lows is to remain intact. Both of these Master Limited Partnerships have considerably higher yields than the wider agriculture sector. Their appeal is in no small part tied to their pay-outs. They will need to sustain their dividend policies if investors are to continue to be attracted to the shares.
In the seeds sector, KWS Saat was been a clear outperformer. It is also unwinding an overextension relative to the 200-day MA and will need to find support in the region of the MA, if the medium-term upside is to continue to be given the benefit of the doubt.
I would also like to caution against investing in commodity tracking funds that hold futures. The contango, interest rate and management fees associated with such vehicles ensure they are more suitable for seasoned traders than investors.