Monthly Agriculture Company Performance Roundup: August 2013
BMI view: In this month's agricultural company performance roundup, we maintain our long-held view for the outperformance of livestock producers and biscuit/flour makers, compared to the underperformance of sugar and agricultural input equities. Within the agricultural input companies, we now see the outperformance of fertiliser producers compared to seeds and machinery, as we believe share prices for fertiliser companies will stabilise after being dragged down by the recent collapse of the Russian-Belarusian cartel .
We maintain our long-held view that livestock and biscuit/flour companies will outperform the rest of the agricultural complex over the coming months. We believe cocoa companies will be top performers too, but believe this view is more difficult to play as Barry Callebaut is one of the only pure players in the cocoa sector. We believe livestock and biscuit/flour companies will benefit from a rebound in margins in the short term on the back of sharp moderations in grain prices. In fact, our view for grain prices to moderate in Q213 has played out spectacularly, with strong US corn and soybean harvests expected this season, while European wheat crops are also seeing a recovery. The S&P GSCI Grains index has fallen by 22.0% since June and, although we see most of the losses in prices behind us, we expect lower prices will start being fed into producer margins in the near term.
We expect companies like Tyson Foods and JBS to continue to perform strongly compared to the rest of the agricultural complex. (see 'Global Company Strategy' for JBS and Tyson). JBS and Tyson have seen their share price rise by 24.9% and 22.3% respectively in the past three months, benefitting from improving conditions in the US beef sector, growth in the poultry sector and moderating feed prices. Even if these companies' price/earnings ratios are close to a top, we are not calling yet for their share prices to lose ground in the near term as we believe there is more room for margins to recover and as investor sentiment has been improving towards the US livestock industry as a whole.
|Livestock On Top|
|Select Sub-sectors - Average Three-Month Share Price Performance Of Constituent Companies (% Chg)|