Clients have been asking about this trade "because it is a theme and one that doesn’t have to do with company buybacks, potential M&A activity and presidential promises," said John Roque, technical analyst for WJB Capital Group, in a note. Corn, soy and wheat “charts show big bases, powerful technical setups and nascent monthly momentum."
The PowerShares Deutsche Bank Agriculture ETF (DBA), whose biggest components are corn, wheat, soybeans, cattle and coffee, is up 5 percent in the last month. Potash, the fertilizer maker that is the focus of a $40 billion hostile takeover by BHP Billiton, is up almost 40 percent this year.
Short-term causes for the pop in soft commodities and the related stocks are drought conditions here and in Russia. Longer-term, it’s a story of emerging economies around the world with increasingly more sophisticated diets.
Roque, who references ‘Green Acres’ in his note, believes the best way to play the food trade from here is through machinery companies. He names AGCO (AGCO), Deere (DE), CNH Global (CNH), Lindsay Corp (LNN) and Tractor Supply Company (TSCO) as potential buys.
The stock market has risen the last two weeks, climbing back from near the bottom of its range for the year, as M&A activity has picked up and value investors have come back in to equities perceived to be cheap. Gains have been muted as investors and companies wait to deploy capital until they find out their tax payment fate following the mid-term elections. The consumer also continues to cut credit as they try to get by.
"While folks on Main Street are struggling with an uncertain economic future and signs of a weakening recovery, for U.S. farmers, their prospects have rarely looked better, said John Stephenson, author of ‘The Little Book of Commodity Investing,’ in his newsletter. The trader points out that exports of agricultural products may top $100 billion, the second-highest ever number, according to estimates from the Federal Reserve’s Omaha branch.
"With more money in their overalls, farmers are beginning to spend," he said.
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