Ag Equipment Intelligence

Ag economists from the Univ. of Illinois have demonstrated that the stock prices of 20 publicly traded companies that derive most of their revenues from agriculture have generally outperformed the S&P 500.

Clay Kramer and Gary Schnitkey of the Dept. of Agricultural and Consumer Economics, Univ. of Illinois, constructed an “AgIndex” representing the market value of agricultural” companies representing producers of fertilizers (Agrium, CF Industries, Intrepid Potash, Mosaic Co. and Potash Corp.), equipment (AGCO, Art’s Way Mfg., Caterpillar, CNH Global, Deere, Kubota and Lindsay Corp.), seed and genetics products (Monsanto, Syngenta), crop protection (Dow Chemical, DuPont and FMC) and those considered “first processors” (Andersons, Archer Daniels Midland, Bunge, Corn Products Int’l).

The AgIndex was then compared to the S&P 500, an index that tracks the market values of 500 large companies in the U.S. The AgIndex experienced a decline in value in 2008 larger than the S&P 500.

Since 2008, stock prices of companies in the AgIndex rose more than the S&P 500.

Overall, the AgIndex increased more since 2007 than did the S&P 500. Like crop farms, many agricultural firms have performed well in the period of higher commodity prices.

Market value changes of sectors within the AgIndex vary considerably. The sector with the highest increase from 2007 through 2010 was the fertilizer sector, more than doubling market values. Fertilizer demand increases and merger activities likely led to higher market value of firms within the fertilizer sector, according to the Univ. of Illinois ag economists. The equipment sector has the second highest increase with a 51% increase followed by seed and genetics with a 37%.

The AgIndex and S&P 500 are based only on market values and do not include dividends in the calculations. As a result, the index reflects returns only from changes in market values. Index values understate total returns.

Yearly Change in Value in AgIndex and S&P 500*

Year               AgIndex               S&P 500

2007                   55.2%                   2.2%

2008                   –48.0%                  –35.6%

2009                   36.7%                   21.6%

2010                   26.0%                   12.3%

*Stock prices and S&P 500 index values. Source: Yahoo Finance. Computation of AgIndex is original.

— June 2011 Ag Equipment Intelligence