Pressure on Canadian agriculture stocks seen to ease

 

 

A plunge in grain prices to start 2010 has pressured shares of some Canadian agricultural companies, but the pullback may be short-lived given the industry's strong long-term fundamentals.

 

Analysts said the multi-year trend of improving diets in populous, developing countries like China and India remains intact, suggesting investors may find opportunities after recent price drops in the sector.

                                           

Wellington West Capital Markets analyst Robert Winslow thinks grain prices could still drift lower this year, taking agricultural equities with them, but underlying bullish fundamentals should result in higher grain prices - and better performance by those stocks - a year from now.

 

US agriculture futures plunged in January, with Chicago corn down 14% and wheat and soy falling 12% as of last week, mostly on projections for big supplies.

 

That pressure has spilled onto markets for Canada's two biggest crops, spring wheat and canola, with ICE Canada canola futures down about 8%.

 

The performance of Canadian agriculture companies that do everything from handling grain to selling machinery is linked closely to the prices farmers collect for their crops.

 

Saskatchewan-based Viterra Inc., which became a global grain handling giant with last year's acquisition of Australia's ABB Grain, reported a small fourth-quarter loss on January 21, with its stock off nearly 12% from its recent high, partly due to weaker commodity prices.

 

While demand in developing countries keeps the longer-term outlook bright, some farmers may not be able to ride out a lengthy grain price slide, said Brian Wittal, an agriculture analyst with Pro Com Marketing.

 

Analysts are expecting that big global grain production and a rebound in South American soy output will keep pressure on Chicago corn, soy and wheat futures through the end of 2010.

 

Still, many agriculture-related equities are trading on the multi-year outlook, supported by the belief that as booming populations in the developing world prosper, consumers will eat more meat from grain-fed livestock.

 

''(A lower grain price) does not mean the year is a complete writeoff by any means, but it definitely puts a negative slant on things,'' said Jason Zandberg, an analyst with PI Financial Corp., who thinks grain prices will be flat if not higher by autumn.