5/10/2016
By Laura Cotterman

Agriculture stocks are trading higher on USDA data that shows a strong outlook for grain and meat commodities. Generally favorable growing conditions, improved forage availability and crop yield are creating strength across the board.

Some highlights from the May World Agricultural Supply and Demand Estimates (WASDE) report include:

• Record corn harvest of 14.4 billion bushels of corn in 2016
• US corn use is forecast to increase 4% for 2016/17
• US wheat supplies are forecast up 6% as excellent spring growing conditions boost crop yields
• Soybean production is forecast lower coupled with sharply reduced stocks average prices are forecast at $8.35-$9.85/bushel compared with $8.85 in 2015/16
• Rice production could rise to its highest level since 2010 with the area planted up 32% from last year
• US red meat and poultry production is forecast to increase in 2017 as larger calf crops reach maturity
• Fat cattle are also forecast higher as good forage and lower feed costs improve carcass weights
• The outlook is solid for hogs and broilers as well with crops forecast higher

Beneficiaries of the improving outlook for agriculture and commodities include fertilizer stocks, farm machinery and seed companies.

Fertilizer stocks have been crushed, but there are signs of life including higher forecasts from Mosaic (MOS) during its Q1 earnings report on May 4, 2016. The company forecast higher phosphate and potash sales for the current quarter after it reported higher-than-expected first quarter sales. The Brazil unit reported that the country's fertilizer sales had doubled the first 10 weeks of the year compared to the same period 2015.

Mosaic forecast phosphate sales of 2.3 million to 2.6 million tonnes, vs the 2.2 million tonnes it sold in the Q1. Potash sales are expected at 1.9 to 2.2 million tonnes vs 1.5 for Q1.

China continues to weigh on commodities sensitive stocks like Joy Global (JOY), which was hit hard by China data on May 9 (-18%),  only to rally on improved data from the WASDE (+5%). The purer agricultural names like Deere (DE) continue to respond to strong commodities with high volume rallies.

Stocks to watch include: DE, MOS, AGU, MON, TITN

Laura Cotterman
Wall Street Strategies

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