Sunday, May 1

Week 252 - Barron’s 500 AgriBusiness Companies

Situation: We follow companies that support grain production closely because they’re “withering on the vine.” Farmers can’t afford to purchase supplies and replace worn-out equipment because grain prices have collapsed due to overproduction. Mainly, the weather is responsible. El Nino, with warm water collecting in the Eastern Pacific Ocean, means there is almost enough rainfall worldwide. But El Nino will soon be followed by La Nina; then there will be droughts and the price of grain will rise. Should that happen, many farmers will have higher incomes and be able to buy new equipment from companies like Deere (DE).

Mission: Develop a spreadsheet that includes all the major US and Canadian AgriBusiness companies, i.e., those that meet the agronomy, equipment, and distribution needs of farmers. To identify companies with the highest revenue, we’ll confine our attention to those that appear on the 2015 Barron’s 500 List.

Execution: There are 13 companies that have at least a 15-yr trading record. Six are chemical and seed companies that address agronomy needs; 4 are equipment companies that supply tractors, harvesters, and support for those; 3 are distribution and marketing companies for the raw commodity (wheat, soybeans, corn, rice, and sorghum).

Bottom Line: These 13 companies are not doing well (see Table). Total returns/yr for the past 5 yrs are negative for the average company but have become worse over the past two years. Perhaps Dow Chemical (DOW) and duPont (DD) are managing better than the rest, but even they have suffered so much that they’re planning to merge operations.

Risk Rating: 8

Full Disclosure: I dollar-average into MON, and also own shares of DD, ADM, and DE.  

NOTE: Metrics in the Table are current for the Sunday of publication; metrics highlighted in red denote underperformance vs. the Vanguard Balanced Index Fund (VBINX).

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