New Stock Index Reveals Agribusiness Strength
Publicly traded ag companies profited even as the general economy declined.
Mike Wilson
Published: Apr 29, 2011
U.S. agriculture is leading the general economy out of recession. A recent University of Illinois study comparing the returns from publicly traded companies from 2007 to 2011 shows an 8.6% market value increase from agriculture-related companies compared to a 2.7% decline for companies in the S&P 500.
John Deere recently reported quarterly sales were up 27% and net income for the quarter jumped 111%. Samuel Allen, Chairman and CEO, has vowed to double annual sales at Deere by 2018. Allen says global demand for commodity crops should keep prices attractive even as farmers bring new land into production in places such as Russia and Brazil. Allen says agriculture should see a sustained period of growth, in part because of a growing middle class in countries like China.
The University study looked at 21 agriculture-related companies in five sectors: fertilizer, equipment, seed and genetics, crop production, and first processors, says U. of I. graduate student Clay Kramer who created the index with agricultural economist Gary Schnitkey. The goal was to build an 'AgIndex' that measured the change in market value of publicly-traded agricultural companies and compare it to the S&P 500, looking at market values over time, from 2007 up to the first quarter of 2011.
"In the first year, we saw a 55% increase in ag companies compared with 2.2% from those in the S&P 500," Schnitkey says. "Year two was the year of the big stock price decline. The S&P 500 declined 35% from the beginning of 2008 to the end of 2008 and the ag market fell even further – 48%."
Among the five agriculture sectors, the first processors didn't perform nearly as well when compared with fertilizer and equipment companies, Kramer says.
"From the beginning of 2007 to the end of 2010, there was a 2% decrease in the crop protection sector and a 4% decrease in the first processor sector," he notes. "These sectors did relatively well in the first quarter of 2011, having increases that caused the second quarter 2011 value to exceed the first quarter 2007 value."
Fertilizer, equipment, and seed and genetic sectors had large increases in market values. "These firms supply products to farmers, who have generally had above-average incomes," Schnitkey says. "Farms having above average incomes likely led to higher demand for fertilizer, equipment, and seed and genetic sectors."
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