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
Contents
Contributors
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
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