Corn Plummets While Chicken Dances Higher

The USDA reported that corn (NYSE:CORN) stockpiles surpassed forecasts by 150 million bushels on Friday, causing fertilizer stocks to drop and chicken producers to pop.  The surplus stockpile has been attributed to a higher use of wheat in livestock rations, reducing the need for corn.  The news devastated fertilizer companies Mosaic Co. (NYSE:MOS) and CF Industries Holdings, Inc. (NYSE:CF).

The surprising USDA corn number caused a steep decline in several agriculture (NYSE:RJA) investments.  December corn futures hit their limit down amount of 40 cents, while soybeans and wheat (NYSE:GRU) futures declined by nearly the same amount.  Corn prices are now down for the third quarter. Mosaic, the world’s leading producer of phosphate and potash, fell more than 9% on Friday as shares hit a new 52-week low.  Mosaic shares have already been in a decline recently, as the company reported an earnings miss on Wednesday.  For the fiscal first quarter, Mosaic reported net income of $1.17 per share, compared to estimates of $1.29 per share.  Shares are down 35% year-to-date.

The world’s second largest nitrogen fertilizer producer CF Industries (NYSE:CF) was also crushed by the USDA report.  Shares closed more than 12% lower on Friday.   Shares are now down about 8% year-to-date.  Other nutrient agricultural companies such as Agrium Inc. (NYSE:AGU) and Potash Corp. (NYSE:POT) held up slightly better on the news, but still declined 5.18% and 4.80%, respectively.

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Investors looking to benefit from the increase in corn supply should consider Sanderson Farms (NASDAQ:SAFM) and Tyson Foods (NYSE:TSN) as both companies closed higher on the news.  Meat companies stand to benefit from cheaper feed prices, which will reduce the cost of producing chickens, cattle, and hogs.  “I don’t know if it’s sustainable, but it’s a big deal,” D.A. Davidson & Co. analysts Timothy Ramey, said of the impact on meat producers. Ramey also expressed concerns about the rising middle-class in Asia.  He explained, “We are developing new middle-class users of meat in China (NYSE:FXI) and the Far East, and that change is not going to reverse itself.”  The combination of higher demand and lower feed costs is a recipe for success in the meat industry.

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