Agribusiness Recap: Goldman Sachs Shakes Commodities

While gold (NYSE:GLD), silver (NYSE:SLV), and oil (NYSE:USO) steal the show, let’s take a look at how other commodities (NYSE:RJI) and agribusiness investments did this week.

Monday

Commodities were stopped in their tracks on Monday as several headlines made investors question themselves.  Although agriculture (NYSE:RJA) stocks have been rising sharply with quantitative easing and reduced supply, they weren’t immune to the overall pullback seen today.

Goldman Sachs (NYSE:GS) announced they are closing their top trades for 2011, which include Platinum, Oil (NYSE:USO), Copper (NYSE:FCX), Cotton (NYSE:BAL), and Soybeans.  Naturally, this helped a selloff across the entire agriculture landscape.

Shares in the Agriculture Double Long ETN (NYSE:DAG) closed down 1.42% on Monday.  The ingredients of this index contain equal amounts of corn, wheat, soybean, and sugar.

The Elements MLCX Grains Index ETN (NYSE:GRU) also closed lower on Monday, and is extending the decline in late trading as shares are down 2.5% after the bell.  However, in the past month alone, shares have gained 10%.

Even though most ag names saw a pullback on Monday, Monsanto (NYSE:MON) went against the grain.  The company received an upgrade from Deutsche Bank, from a hold to a buy.  Deutsche Bank (NYSE:DB) also issued a price target of $78 for the stock, which would represent a 16% gain. Shares traded up on the good news to close 1.43% higher.

Goldman (NYSE:GS) may have caused a decline in commodities, but the company seems to have a sweet tooth for chocolate. Goldman upgraded its position from neutral to hold for chocolate giantHershey (NYSE:HSY).

Tuesday

Commodities picked up right where they left off Monday, headed lower.  On Tuesday, Goldman Sachs (NYSE:GS) decided to advise their clients (and the world) on where oil should be trading.  The company announced an oil target of $105, which sent oil (NYSE:USO) and ag stocks lower.

Oil ended the day $3 lower at $106, near Goldman’s target.  The rapid decline had an immediate effect on agribusiness stocks (NYSE:RJA).

The Rogers International Commodity ETN (NYSE:RJA), which holds a basket of 20 agricultural commodity futures contracts, closed 2.58% lower on Tuesday. The commodity basket includes everything from wheat to cocoa.

Individual companies such as Mosaic (NYSE:MOS) and Deere (NYSE:DE) held up slightly better.  Mosaic shares declined 1.96%, but did persuade a federal appeals court to dismiss a preliminary injunction.  The dismissal will allow the company to expand mining operations in central Florida.  Mosaic is also planning to spinoff from Cargill.  Deere closed 1.62% lower, but is gaining a margin of that back in late trading.  The company also plans to issue $1.1 billion worth of bonds tied to equipment loans.

Monsanto (NYSE:MON) continued to rise this week by gaining 3.10% on Tuesday.  It was rumored, that the world’s biggest chemical maker BASF, was going to buy out Monsanto.  However, this has not been confirmed by either company, and sources familiar with the situation claims BASF has no plans to buy out the seed giant.

Wednesday

For several reasons, inflation has reared its ugly head in the grocery store.  Explanations from the Fed’s quantitative easing programs to severe droughts around the world have been blamed.  Last year, Russia (NYSE:RSX) even placed a ban on its wheat exports to ensure enough supply for themselves.

There’s no doubt among consumers and investors that prices are going up.  Cotton (NYSE:BAL) has jumped to record highs, and oil (NYSE:USO) has found a firm footing above $100 a barrel.  Earlier this week, a ShadowStats.com article made headlines that according to pre-1980 CPI calculations, inflation is close to 10%.

As commodity prices continue to increase, how are companies and consumers reacting to inflation pressure?

Hershey (NYSE:HSY), one of the most recognizable names on the planet, has announced the company will be raising prices by 10% on all products.  The company expects to see the financial benefits of the price increases in 2012.

Kraft (NYSE:KFT) recently raised its price on Maxwell House coffee by 70 cents per pound, which represents a 22% increase.  Smuckers (NYSE:SJM), also raised the price on its coffee brandFolgers by 10%.

Other companies have been a little more crafty in hiding inflation from the consumer through means of smaller packages at the same or higher price.  Reese’s peanut butter cups are decreasing 37% in size, and Chicken of the Sea Tuna will also be 17% lighter.  Heinz Ketchup (NYSE:HNZ) will be reducing their standard ketchup bottles by 11%.

Consumers are seeing the changes in grocery stores and their wallets.  Last Friday during a speech, NY Fed President William Dudley tried to assure audience members that inflation was under control.  He cited that although food and energy may be rising, other prices such as the iPad 2 are falling.  An audience member fired back with you can’t eat an iPad.

Investors should watch for a repeat of summer 2008, when gas prices were above $4 a gallon.  Consumers reduced shopping trips and looked for value.  The new hit tv show on TLC called “Extreme Couponing” may already be a sign of how far consumers will have to go to afford food.

Thursday

Shares of the iPath DJ-UBS Coffee ETN (NYSE:JO) brewed 1.14% higher on Thursday.  Although the world production of coffee is rising, it is still outmatched by the rising demand for the morning fuel.  Within the last year, shares in Starbucks (NASDAQ:SBUX) have steamed 45% higher, and competitor Green Mountain Coffee Roasters (NASDAQ:GMCR) has more than doubled in price.

Pepsi (NYSE:PEP), the famous soft drink maker, is also in the ag business through their snack product line.  These include: Doritos, Quaker oatmeal, Life cereal, and Pasta Roni.  In the past month, shares have increased nearly 6%.  Due to rising oil prices and the sustainability movement, Pepsi has announced a new 100% plant based bottle.  The bottle will be made from pine bark and switch grass.  Not all rising commodity costs can be absorb by the company though.  Pepsi has also announced plans to increase Tropicana prices up to 8% due to the cold winter in Florida.  Rival Coca-Cola (NYSE:KO) has also announced similar price increases.

Do you want to profit from commodities and agribusiness? Get a free copy of our highly acclaimed Commodities Premium Investment Newsletter by Chicago Mercantile Exchange commentator Jordan Roy-Byrne CMT.

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