People will always need to eat! That makes Agriculture Stocks more Recession Proof
If you are looking to invest then agricultural products may be a good place to start. Agricultural companies tend to be less prone to drastic changes in the markets on a day to day basis because they are based in commodities or in the production of commodities. Many of these commodities are harvested once a year and while their value may change over time they are generally more stable with the exception of years with bad weather, such as droughts or floods in their growing regions.
Do you have agriculture stocks already?
Do you have agriculture stocks already?
Agriculture Stocks NYSE
On the New York Stock Exchange you can find a variety of stocks that are classified as agricultural stocks. These stocks have a tendency to be affected by the value of the U.S. Dollar and have done well over the last decade due to the dollar's declining value. Some of these companies are even slightly more stable because their products are always in demand whether or not there is a bad crop year.
Monsanto is one of the world's largest suppliers of seed. Back in 2010 the company experienced a severe drop in their stock price after backlash from farmers over seed prices and concerns from the public about their genetically modified seeds. The company overhauled how they dealt with their customers and over the last three years have not only recovered, but have grown their company. The public's fears over their GMO seeds seems to have died off and the company still sells the seeds with great success. This company has some buffering against a bad weather year because they are at the front end of the growing cycle; in fact, they are likely to profit from multiple bad growing years. If a farmer can't turn a profit with normal seeds then they will turn to the genetically modified versions that are designed to withstand the extreme weather conditions in their region.
Potash Corp. is another stock that may find a stable home in your portfolio. This company is resposible for about twenty percent of the fertilizer used world-wide. They operate in seven countries which is good for their investors. By being in several countries Potash ensures that their product will almost always be sold even if there is a bad season in one of their growing areas. Fertilizer is very much like seeds in that it's almost always applied at least once before any bad weather sets in.
Agrium, Inc. is another fertilizer company worth considering. Much like Potash it is a fairly stable company because fertilizer is a necessary part of crop production. The company may not be as big as its competitors, but it's trying to gain ground on that front. Recently they acquired the majority of Viterra's agricultural products business from Glencore. While this did cause a small drop in the stock price after the acquisition, the additional products should help the stock in the long run.
The bigger a company is the more cost effective they can be in their operations, this is still true in agricultural companies and no company proves it better than the Mosaic Company. The company is the world's largest producer of Potash which is used as a fertilizer for crops. In November of 2012 the company paid out divends of twenty-five cents per a share on its stock, which is a decent dividen considering they pay their shareholder quarterly
Intrepid Potash, Inc.
Intrepid Potash, Inc. may be a good buy in the fertilizer market if you're willing to take the gamble. As of February 2013 the stock price of the company is hovering around twenty three dollars per a share. This company is the largest producer of potash in the United States, so it does pose the question as to why it's stock is so low compared with the Mosaic Company who's stock price has recently stayed around sixty dollars a share. The company has been streamlining this last year and has cut operating costs by almost twenty million dollars over the last year. A conservative investor may be wise to wait another year on this stock to see if the company changes are permanent, while this may very well be a good stock to make some money on if the investor is willing to take a chance and has the money to loose if they turn out to be a bad bet.
Syngenta is a company to consider if you're wanting one dealing with seeds. It is on par with Monsanto and has many of the same advantages. It operates in over ninety countries and provides genetically modified seeds. The company grosses over thirteen million dollars a year, mostly from Europe and the Middle East. Between Monsanto and Syngenta the commercial seed market is pretty much cornered; the hard part is choosing which one would be a better investment because they're both profitable companies.
Archer Daniels Midland
Archer Daniels Midland is one of the most diversified agricultural stocks that you'll come across. They provide just about anything a farmer could need short of seeds—from feed to fuel to financial services. ADM even makes food products for the national market. This is one of those companies that is so diversified that it's hard to tell you not to buy it because if one division fails then there are so many others to help cover the failure within the company. It's not an expensive stock at around just thirty dollars a share.
There are certainly more agriculture based stocks on the New York Stock Exchange, but those are the major movers and shakers in the industry. It is just as important to pay attention to the products that result from the seed and fertilizers. The market dedicated to the products that go into making things in the United States called the commodities market and it handles the trading of things like crude oil, gasoline, and plant products. The commodities market is a complicated market. Many people can understand the basics of the stock market where your goals are either to buy low and sell high or to buy into stocks that will pay you dividends over time. The commodities market is a different beast because it involves a future market.
Agriculture Futures Market
The futures market is very much like going to a casino, you place a bet and hope that the cards fall in your favor. The only difference is that you can make an educated bet on the futures market and not leave everything to chance. Basically, sellers and buyers go into the market before the crops are ever out of the field and the sellers sell their crops at a price they think their crops will sell for at the end of the season. Sellers can win big by doing this if the season's yield is more than expected and prices are lower than expected. They can lose big if their crops fail because they still have to provide their buyers with the agreed upon number of bushels. It works just the opposite for buyers. Either party always have the option to sell in the regular commodities market and take whatever price the item is that day.
The Weather and Futures
The weather plays a major role in how things are priced on the commodities and futures markets on a day to day basis. For instance, corn is grown primarily in the Mid-west. If the summer starts out extraordinarily dry it could cause the corn to grow slower or not at all. This would mean that each farmer would get less bushels out of each field at the end of the year. The futures markets would start reflecting the likely higher price of corn in the summer.
Price of Corn
The price of corn, in particular, will affect the price of other products in the supply chain and thus alter their stock price. Corn is a primary feed for many meat animals like pigs, cows, and chickens; so, an increase in corn price will increase how much their companies will pay for feed. This increased cost will likely cause those companies to reduce the number of animals they maintain and as that supply of animals go down the price of their meat will go up.
US dollar Threat
A real threat to all of these stocks is for the US dollar to start regaining value. They have all gone up in price as the value has dropped and if that value were to start to come back then they would likely start dropping in price. The US dollar has shown no signs of a turn around, but as an investor its value is something that needs to be watched closely. If you own agricultural stocks and it looks like the dollar is going to start gaining value then it may be time to sell those stocks off.
Agricultural stocks, whether bought from the New York Stock Exchange or a Commodities Exchange, can provide a stable stock for your portfolio. Many of the seed and fertilizer companies are successful at what they do and are growing their companies. It is wise to stay clear of the futures exchange unless you have an experienced mentor to help you with it. It will take time to learn what real world signals are cues for price changes on the commodities exchange and those signals aren't always right.