Herd on The Street
Oct 03, 2008
The weakening agricultural bubble of the past few months has surely popped if the mood I’ve seen these past three day in New York City is any indication. The herd of investors in agriculture stocks and commodities apparently can’t get their money out of agriculture fast enough. There is real fear out here, and it won’t end until there’s blood on the street., says one New-York analyst.
The anxiety of the overall economy is spilling over to commodities and agriculture stocks. It seems the bloom is off agriculture’s rose, despite what the fundamentals are telling us about the current state of commodity markets.
Spending the past three days in New York gives me a real sense of how serious the investment community believes this current crisis is. Despite what’s happening with the fundamentals of tight carryover stocks and continued uncertainty over the size of this years crop, commodity markets are dropping like a rock. "The tension is palpable," says one New York-based commodities analyst. "The things happening within the commodity markets have nothing to do with what's going on in the commodity markets right now."
The herd mentality. Fund managers are fleeing from the commodity markets like rats from a sinking ship over fears that a worldwide economic slowdown will result in reduced demand for commodities. “Funds are like lemmings” one analyst for a hedge fund told me. “If a fund does something that looks good, then they all start doing it. Ag was everywhere. There were front page stories in the Wall Street Journal and the New York Times about agriculture and everybody wanted in. That’s over now.”
The stock market reacted to rumors that tighter supplies of credit will mean farmers may not be able to qualify for credit to purchase inputs.
The ag bubble has literally popped out of fear. On Thursday, Deere stocks closed down 14%, despite the fact the company is sold out of large tractors until September of next year. Fertilizer stocks were worse. Mosaic plunged an astounding 41% in Thursday’s trade.
Available credit. Credit fears, for now at least, seem to be overblown, at least according to some of the major private financers for agriculture. Bruce Everhart from Wells Fargo told me earlier this week they have plenty of money to loan to farmers. Rabobank Sr. Communications Manager Heather McElrath says they’re in the same position. Farmer Mac, which had significant investments in Lehman Bros and Fannie Mae, created a bit of a stumbling block there, but Secretary Schafer announced private lenders took investment action to rescue that government-affiliated bank.
Everhart suggests the following considerations for farmers:
- Keep your cash
- If you’re prepaying, lock in prices for those expenditures now
“Make sure you have plenty of liquidity. Credit is going to be real inconsistent from all sources for at least the near term,” he says.
As I’m leaving New York on Friday, a message on my Blackberry just alerted me to the fact the House of Representatives has followed the Senate’s lead and voted to enact the bailout, or the more politically acceptable rescue package. You pick, it’s not really important. What’s really important is maybe this passage, coupled with a weekend for the market to catch its breath may bring some sense to our country’s financial system, and maybe even the commodity markets.