Agriculture Stocks

Basket of Agriculture products ETFs and stocks vs S&P 500

Basket of Agriculture products ETFs and stocks vs S&P 500

Both Kraft KFT and Conagra CAG have rather flat and uninteresting “dead money” charts at this time, so I’ve not bothered showing them (only 10 tickers to a graph allowed by Bigcharts.com). But I ought to note that CAG does have a technical “BUY” indication right now. Just not going to be very exciting. (MACD “blue on top” with above zero and DMI “blue on top” while RSI is kind of in the middle; ADX at about 18 says whatever it does it’s doing it slowly..) While KFT is just a flat dead money with 3.7% dividend. Better than nothing, just barely…

Ok, on this chart, what do I see?

DBA, the “Ag Basket” is showing to “be out”. MACD below zero and weaving (meaning steady out) and DMI “Red on top”. ADX at 22 is a medium strength, enough to trust MACD, but also weak enough to trade based on Slow Stochastic (for the impatient and / or swing traders who don’t want to wait for a trend going their way to trend trade…). RSI touched 80 just before the roll down and is not yet at 20, so the negative trend is unlikely to have reversed. It’s in that “SMA Stack weaving” roller state. You can trade the rolls, but the trend is weak and for now negative. It’s a fresh downtrend, so might easily resolve back to the upside; my money would be on swing trades and the assumption that any rally is a ‘counter trend rally’.

How about all those OTHER tickers?

OK, if the “basket” is not doing well, the things in it are probably not too far off from the same state. There can be a winner fighting the group, or a real turkey to avoid, so it’s “worth a look”, but the enthusiasm gets tempered.

TSN Tyson Foods is on the bottom as that bright red line. It’s in a nice uptrend. Chickens eat corn, and corn is up, so what’s the deal? They sell a lot of chickens overseas where folks pay in Euros, not dollars, or in Yen and Yuan, not dollars… Similarly HRL Hormel, that green line in the middle, is in a nice rise. Spam Spam Spam Spam, loverly Spam, beautiful SPAM! I like Spam, so do a lot of other folks… Global sales of a food product with production in cheaper dollars and sales in more expensive Euros, Yen, and Yuan. I think we have a theme forming…

Checking SFD, Smithfield, we find its dark red line rising nicely off the bottom. Why? They sell a LARGE number of hogs / pork to Japan. Japan where folks are just a might worried about radioactive pork locally… COW is a combined beef and other meats ETF. It’s more flat, but with a little rise at the end. Folks cutting back on expensive beef and substituting pork and chicken are dampening it’s move.

The rest of the Ag companies had been beating both gold GLD and the S&P 500 nicely, but have taken a tumble “lately” at the end. The ‘pause that refreshes’ or start of a new downtrend? My guess, and it is only a guess, is that it’s a pause as folks start thinking about the new season in the N.Hemisphere. The old grain stocks are pretty much sold out and contracts on the new stuff are a bet on a new future. It’s not just the weather for what has been planted, it’s also “who will now plant more because it WAS high priced”… As the futures jockey for position, the higher prices moderate some, and “things adjust”. That JJG Grain ETF just looks “topped out” to me. DMI is “Red on top” and ADX is a dismal 16 or so. No trend to trade and what there is, is weakly down. MACD crossovers are ambiguous then, but that its way below zero is a “no go” signal. RSI looks like it’s setting up for a 25-30 ish to 50 ish ‘roll’ in a downtrending ticker.

As grain goes, so goes a lot of the others (but the dropping grain will be helpful to the pork, chicken and beef producers…).

Note that HOGS is a Chinese Hog operation. It’s very volatile, but looks like it’s maybe making a local bottom. RSI touched 20. MACD in a ‘crossover upside’ but with weak momentum so far. DMI still “Red on top” but price is well away from the SMA stack to the downside. Worth watching for some “mad money” bottom fishing, but not yet “investable”. Maybe a “dead cat bounce” or “RTFM Reversion To The Friendly Mean” counter trend trade.

MOO is an ETF basket of Ag stocks so serves as a general “industry” as opposed to “commodity” benchmark. Technically with an ‘entry’ call as MACD has “crossover upside” and DMI has “Red inflected down” as ADX has inflected as well (trend reversal underway). RSI didn’t reach “near 20” so it looks more like a “buy the dips” than a “Hard Bottom”. Unfortunately “buy the dips” looks exactly like “new collapse” so you get to play the “Dance with the SMA stack”. Prices rise back to the SMA stack. Then they either punch through (usually with a ‘revisit from the topside last call’) or fall away downside and confirm it’s not a ‘dip’ but rather a ‘plunge’. So AT the SMA stack from the bottom side, you can either buy puts for “insurance’ or sell and rebuy if the trend continues (or put a “stop loss order in place, though I think the puts work better…)

If we ‘zoom in our time scope’ to 6 months, we can see some of these trends a bit more clearly.

A 6 month view:

6 Mos Ag producers with Volume, Slow Stochastic, and W%R

6 Mos Ag producers with Volume, Slow Stochastic, and W%R

Here we see the recent rise in SFD much more clearly, also the plunge of HOGS stands out in stark contrast. HRL is that green line just cruising up the middle, outperforming the S&P nicely. I think it’s a good time to be in SPAM ;-) TSN with a PE of 8, falling feed prices, and rising overseas demand also is in a nice cruising state. Love that “Chicken in every pot”! (Or wok!!).

We can also more clearly see how grains JJG are falling in comparison, and how COW is trying, but just not as much “go juice”. Besides, some beef is “grass fed” and grass “just is”… and the price of it doesn’t change much month to month…

MOO the general Ag companies basket, is acting just about like the Grains and the overall stock market averaged together.

So, to me, looks like a reasonable time to be a hog farmer or chicken producer, especially if you sell overseas to asian countries.

One bit of worry: That volume spike to the downside on DBA with a fall in volume to the upside afterwards. That says the trade in it is now weak, possibly broken. If you look at W%R, the width of the “lobes” above the midline are getting narrower and narrower. The “positive runs” are getting shorter. Slow Stochastic has called a ‘trade out’ and W%R is headed for a midline cross downside confirming the “be out’ longer term. All of that argues for the general Ag commodities run to be over. (Not necessarily a collapse in prices, just “going up has left the building”). So as the “above 50 lobes” of W%R are now about the same size as the “below 50 lobes” it’s a ‘sideways roller’. Day trades, but not trend trades. IFF the trend to the downside starts, you will see the ‘under 50’ lobes widen and the ‘above 50’ narrow.

Looking at what they are presently holding:

http://finance.yahoo.com/q/hl?s=DBA+Holdings

We find a lot of bets on coffee and cocoa… grains not as much as last I looked:

COFFEE ”C” FUTURE Sep10 N/A 14.83
COFFEE ”C” FUTR DEC10 N/A 14.52
COCOA FUTURE May11 N/A 14.00
COFFEE ”C” FUTURE May11 N/A 13.77
SUGAR #11(WORLD) JUL11 N/A 12.57
LIVE CATTLE FUTR Oct10 N/A 12.11
COCOA FUTURE Mar10 N/A 11.90
COCOA FUTURE Mar11 N/A 11.79
COCOA FUTURE Sep10 N/A 11.69
COFFEE ”C” FUTURE Mar11 N/A 11.34

This also shines a bright light on both the features and foibles of an ETF (or ETN – Exchange Traded Note). Yes, you get “active management” to do things like swap from grains to coffee and cocoa for you; on the other hand, unless you check it every so often, you don’t really know what is inside…

As we will see below, right now cocoa and coffee are not looking so good, sugar even worse… So, holding up better than the grains, and if you must be in an ag commodity (as that is what the fund does) they have likely picked the least worse place to be, but still…

How about the inputs?

Stuff Farmers Buy vs Gold and the S&P 500

Stuff Farmers Buy vs Gold and the S&P 500

Looking much more like a “buy the dips”. Farmers planting a ton (or a million tons) more corn and wheat will be buying a lot more ‘inputs’ to feed it. So to the details:

We are using MOO as our Ag benchmark here, but also comparing to GLD Gold and the S&P 500 SPY in this “race”. Which is winning? A sterile metal, a broad basket of stocks, an Ag basket, or individual companies?

Inside moo:

Top 10 Holdings (66.87% of Total Assets)
Company Symbol % Assets
POTASH CORP OF SASK INC POT.TO 9.45
Monsanto Company Common Stock MON 8.89
Mosaic Company (The) Common Sto MOS 8.61
Deere & Company Common Stock DE 8.34
Syngenta AG Common Stock SYT 7.54
Wilmar F34.SI 6.31
SYENF 4.62
Archer-Daniels-Midland Company ADM 4.52
Archer-Daniels-Midland Company ADM 4.46
YAR 4.13

It is a nice broad basket of Ag Inputs companies, along with ADM as an “ag output buyer / processor”. Nice “corner on the farmer” that catches them coming and going. (Or nice hedge to buy if you ARE the farmer…)

MACD Has a ‘buy” with an upside crossover, “Blue on top” and crossing the zero line to a positive trend. The SMA Stack is ‘weaving’ as it does in either a top/rollover or in a ‘buy the dips’. DMI- (the red line) has inflected hard down and DMI+ (the blue line) is inflected up headed for a crossover while ADX has inflected to a weakening state (meaning a trend reversal underway). The only ‘worrying’ bit is that RSI at 30 did not get very close to ‘near 20’ and we’ve not had ‘step up’ from that close approach. That is more of a ‘counter trend rally more down to come’ posture… So I’d be worried, especially as the overall market is due for a ‘pause’… but we’ll look further down below on the 6 month chart. It could just be a ‘seasonal pause’ as farmers place there orders…

The rest of the lines show some interesting bits. MON Monsanto is underperforming the S&P 500. What’s the point? It’s run up at a good clip lately, but that’s only because if fell further in the middle. SYT Syngenta is a European seed company. It’s about S&P match. Why take all the currency and company risks when you could just by SPY and match or beat with lower risk? No, we’ve got to look in the top part of the pack.

DE Deer, MOS Mosaic, and POT Potash all beating the general market and worth more than gold… Those are the “money shots”. If you are going to trade this space, they are the better trade vehicles. But is now the time? The roll down at the end is either the “boarding call” or the “get off the bus”. At this point, I’d vote for “stay off the bus”. If you want to buy / trade these things, only do it with a ‘buy if touched’ order above the SMA stack and then “double down” if it falls back to touch the SMA stack from the topside then fails to penetrate it.

Zooming in to the 6 month chart shows???

The 6 Month view:

Stuff Farmers Buy 6 Month view Volume, Slow Stochastic, W%R vs GLD SPY

Stuff Farmers Buy 6 Month view Volume, Slow Stochastic, W%R vs GLD SPY

Look at that volume fade in MOO at that ending run up! There’s no ‘there there’!

Slow Stochastic is looking like a ‘late in the trade’ at the moment and W%R is showing “be in” but not a time to GET in. (That is at the midline crossover to the topside). The width of the ‘above 50 midline’ lobe is about the same as the 2 ago size and larger than the last one. This is late in the trade and with no clear uptrend to save you. If you look at the individual tickers inside MOO, they have very similar patterns (though with some variation, like POT had a big spike up on a buyout offer some months back, then dead money, followed by wobbles. With a PE of 9 and overseas sales, it “has potential” and of all the carts is the most interesting, but I don’t think that’s enough to beat a weakening environment. IF I make a trade in this space, it would be POT or MOS but only on a faster 10 day chart. The risks of a new downtrend are just too high.

And the Ag Commodities?

But on to the actual commodities produced (that determine what the Farmers can buy…)

Stuff Farmers Buy vs Gold and the S&P 500

Stuff Farmers Buy vs Gold and the S&P 500

Grains JJG are now a ‘busted trade’ and Biofuels FUE with them. SGG Sugar broke first (which is why I watch it most of the time) and it looks like Coffee JO is in the early stage of a breakdown. First I give up my sugary drinks, then my Wheaties, but last is my coffee…

You can also see how GLD Gold has basically flatlined and Cocoa NIB has broken hard. The most interesting thing on the chart, to me, is WOOD. Exports to China and Japan?

For JJG the MACD is “Blue on top” but the slope of the open “mouth” is very flat / sideways. That’s not a reversal, that’s a ‘stabilizing at negative value’.

The 6 month view:

Ag Commodity ETFs and a GLD Gold and SPY S&P 500 benchmarks

Ag Commodity ETFs and a GLD Gold and SPY S&P 500 benchmarks

We’ve got W%R headed for an exit call at the midline cross downside. Slow Stochastic said “get out” a while ago, and Volume is just dismal. The comparative lobe sizes on W%R says the run is over and the volume rush to the upside is history now. The only really interesting thing is the way WOOD is pulling away from the S&P 500. That leads me to think of Plum Creek Lumber, a timber REIT.

PCL Plum Creek Timber REIT

PCL Plum Creek Timber REIT

Now that’s a nice chart. Tracking the upper Bollinger Band upward. MACD saying “be in” with an above zero “Blue on top”. Best entry was only 2 weeks ago for the recent run (so I’d be OK with buying 1/2 or 1/4 a position now and ‘filling it out’ on the next dip) and it’s holding up against the S&P as SPY rolled over. Built in inflation protection, inherent growth (those trees keep on growing, sales or no sales), 3.89% dividend at present and with the underlying commodity in an uptrend. RSI looks like it’s doing the 50-80-50-80 roll of a runner to the upside and DMI is “blue on top”. I’d call it good for trading OR for investing. Nicely beating gold, too (and trees grow while gold just lays there…)

There is some risk of a downside tumble on a “double dip” recession, but I can’t see housing starts dropping much from their present ‘near zero’… If it does, I’d just finish the rest of the position then sit back for a couple of years. The trees will grow, the timber has international sales and fundamental value.

The 6 month chart has Slow Stochastic saying “be in” and a nice steady volume with volume holding into the uptrend. W%R is saying “be in” too. Yeah, the best entry was a couple of weeks ago. OK, now we know what to watch…

PCL Plum Creek Timber REIT with Volume, Slow Stochastic, and W%R

PCL Plum Creek Timber REIT with Volume, Slow Stochastic, and W%R

So why this sudden interest in Ag? Because on CNBC today they were all over Ag as the hot sector. To me, that is often an indication that the trade is over now in a sector. They get on the movement toward or at the end, then push it at the retail investor. On the off chance other folks were seeing that sort of thing, I thought I’d show my approach to evaluating them and the “trends” they “find”.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged , . Bookmark the permalink.

4 Responses to Agriculture Stocks

  1. P.G. Sharrow says:

    Chiefio; your view point is a bit different then mine in the ag.field as I am and old farmer from a small town. When I make an investment it is more like a commitment then a bet.
    Interesting observation on lumber. I’ve thought the wholesale price of lumber has been way to low for a while,but it may be another year before U.S. use picks up.
    Japan on the other hand will need huge amounts of building supplies quickly. These will come from the Canada and U.S. pg

  2. E.M.Smith says:

    @P.G. Sharrow:

    That’s the “5 or 10 year weekly interval” chart. Sometimes it can make more money than the ‘faster trades’… but it takes a lot of patience.

    FWIW, I tend to build up a ‘stable’ of companies I like. They are companies that have been around a long time, are well run, and are the best stallion in the herd. Then I place my bets at the track inside that group most of the time.

    So you see DE Deer on this list, and CAT Caterpillar. But not some strange ‘also ran’. I’d be comfortable buying and holding them for years in any case. Folks are going to buy their stuff. Similarly POT and MON. They will be in business for decades. Sometimes I’ll toss in an upstart, like IPI or AGU that competes with them, but even then it’s usually a pretty well known company. Like Hertz and Avis… but I don’t go down to “Bobs Daily Junker Rentals”… at least not without good reason.

    So by the time I’ve got a chart “Race” done, I’ve already selected a fair amount. The only exception is the ETFs and ETNs, but there you have professional management deciding what to hold and when and it’s usually the same set of tickers.

    OK, that said:

    The chart is to time the entry and holding period, mostly. It’s to prevent me from jumping into a “good company” right after it has run up for 6 months and is about to give i tall back in 4 weeks. Or get me out in the first week of that give back…

    If done well, it can shave a year off the time to earn some money from a good company. (If done badly, it can cost you a year… and most often “hot news” means done badly). So it is as much an “investor discipline” tool as it is a “trader tool”; and for the simple reason that at the moment you buy or sell a stock, on THAT DAY you are a trader. The only question is how good a one you will be…

    The secondary use I have for them is as a tool to understanding. You see that here. I took “all the usual well known Ag names” and tossed ’em on charts just see what I could figure out. Figured out overseas sales of food mattered. That’s a clue right there. In the context of grain prices topping out, and maybe rolling over, it’s a very good clue… Also got to see a long upward run looking like I’m late to the party in a lot of the area. Tells me to ignore all the “happy talk” on the TV. Helps to “keep balance” in the face of hype. From that I can also see when the TV is being a bit, er, um, “misleading”… and I can adjust accordingly.

    So at the end of it all, I figure out that Forestry is better than selling wheat right now (as the spring has just begun) and that we have a hungry world that wants meat, so maybe being in the meat business for a while is the better end to be in. Not really much different from a guy with a farm deciding to sell his corn, or start some feeder hogs on it. Just I’m planting radishes and you are planting asperagus … We both have a “commitment” to our crop, just a different planting and harvesting schedule…

    (For folks who don’t know, Radishes are a 25 to 50 day crop depending on variety and temperature, while Asperagus is a multi year crop…)

  3. George says:

    WalMart CEO says “expect inflation”

    http://www.usatoday.com/money/industries/retail/2011-03-30-wal-mart-ceo-expects-inflation_N.htm

    U.S. consumers face “serious” inflation in the months ahead for clothing, food and other products, the head of Wal-Mart’s U.S. operations warned Wednesday.

  4. Pascvaks says:

    @George

    No kidding! The way the Fed is printing money, and the Pol’s in DC are playing “Chicken” with the economy, it will soon cost a $Billion to buy a loaf of day old bread.

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