Crops to Livestock Outpace MOO ETF on Drought, Pig Virus

Crop and livestock gauges are outpacing an index of the world’s biggest agriculture companies after a drought in Brazil and a deadly virus killed piglets in the U.S.

The CHART OF THE DAY shows gains of at least 17% this year for the livestock and crop gauges derived from the Standard & Poor’s GSCI Spot Index of 24 raw materials, while the Market Vectors Agribusiness exchange-traded fund that tracks more than 50 companies (ticker: MOO), including Monsanto Co. and Deere & Co., has dropped 0.2 percent. Coffee and hogs lead gains in the broad GSCI measure.

The “stars are aligned” for recovering U.S. and global economies to combine with the bullish crop fundamentals, said Jake Dollarhide, the chief executive officer of Longbow Asset Management. The benefits for companies of rising commodities are often “delayed or not immediate,” he said. Drought in Brazil in the first quarter damaged coffee beans, while in the U.S., adverse weather eroded prospects for winter wheat, and the porcine epidemic diarrhea virus spread to at least 29 states in the past 12 months.

“When you see such a stark contrast such as agriculture prices versus agriculture companies, it could be a lucrative buy-in opportunity,” said Dollarhide, whose firm in Tulsa, Oklahoma, manages about $75 million. “You could definitely group the companies that comprise the MOO index as value opportunities going forward. Eventually, they’ll follow agricultural prices higher.”

There’s a “natural lag” between crop prices and equities, Dollarhide said in a telephone interview. A farmer earning more from corn may not buy a new combine or equipment right away, he said.

The companies in the MOO ETF are currently “a mixed bag,” Dollarhide said. Both agricultural stocks and commodities will move higher if there’s a full recovery in the U.S., the world’s largest economy, he said.

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