Morningstar Advisor - February/March 2013 - (Page 30)

Sector Rap In Agriculture, It’s Good to Be Strong By Philip Guziec Sector is still largely cyclical, but companies with moats will be in the best position to take advantage of long-term secular trends. Over the past three years, corn prices have doubled, soybeans have climbed more than 66%, and wheat has jumped 50% as challenging conditions in major growing areas in the United States, South America, and Russia have kept farmers from satiating growing consumption. Over the near to medium term, Morningstar’s agriculture analysts believe that normalizing weather and slowing demand will drive crop prices lower. But looking beyond the next five years raises important questions about farmers’ abilities to produce enough food to meet global demand. 30 Morningstar Advisor February/March 2013 To find out what the outlook is for investors, we asked two analysts to discuss the challenges facing the agriculture-related companies they cover. Adam Fleck is an associate director of research, and Jeffrey Stafford is an equity analyst who covers agriculture and chemicals. We talked Dec. 13. Philip Guziec: There’s been a lot of discussion about high food prices in the news. Can you get us up to speed? What’s going on there? Adam Fleck: The food-price run-up in the U.S. is largely due to the terrible Midwestern drought, among the worst in several decades. Year-to-year changes in food prices are largely driven by weather. Demand growth—outside of corn-based ethanol, which is unique to the U.S.—is relatively steady in developed markets. So, as supply is either crimped or abundant, depending on growing conditions and how much was planted based on prices in the beginning of the year, we get situations like 2012, where reduced supply will lead to exorbitant price increases. But

Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2013

Morningstar Advisor - February/March 2013
Letter From the Editor
Social Media, the Old- Fashioned Way
Do You Use Active Strategies?
Youth Appeal
How to Buy the Unloved 2013
Morningstar Managers of the Year
Investments á la Carte
Investment Briefs
Approaches to Absolute-Return Investing
In Agriculture, It’s Good to Be Strong
Yes, There Are Good Active Funds
The Decoupling
Where It Could Pay to Be Active
The Active Fund That Defies Obsolescence
The Epitome of an Active Manager
Lines of Communication
The Existence of Market Timing ‘Intelligence’
A Route to Commodities that Bypasses the Futures Market
Best Positioned for Health-Care Reform
Diversified Stock Funds That Earn Their Stars
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
A Twisted Debate

Morningstar Advisor - February/March 2013