Weak Corn Forecast, High China Demand Lift Ag Stocks

Weak corn forecasts and high food demand in china is boosting ag stocks like Potash (POT), Monsanto (MON), Mosaic (MOS), John Deere (DE) and others.


It may seem counter-intuitive but bad news on corn supply is usually good news for the stocks of companies that sell stuff to farmers. The dynamic works like this: lower supply means higher prices for the crops that farmers do harvest and that means they’ll have more profit to spend on things like tractors, seed, and fertilizer. If demand is growing as supply is falling, the dynamic can get supercharged.

And that’s what’s happening right now. On July 9, the U.S Department of Agriculture reported that farmers had planted less corn because of excess and untimely rains at the same time as demand, especially from China, is climbing.

The result is that U.S. corn inventories are projected to fall 7% by August 2011.

Not surprisingly stocks such as tractor-maker Deere (DE); fertilizer producers Yara International (YARIY), Potash of Saskatchewan (POT), and Mosaic (MOS