Here’s The Best Way To Play The ‘Ag’ Commodity Bull Market

Here's The Best Way To Play The ‘Ag’ Commodity Bull


[This blog post is an excerpt from a recent TSI commentary, with updated charts and minor modifications]

As is the case with the price of , the price of the S&P Agricultural Index (GKX) appears to have made a cycle low via a double bottom in April and June of this year. At this stage the rebound from the Q2-2020 bottom doesn’t look more significant than any of the other rebounds of the past five years (see chart below), but the combination of rampant monetary inflation, rising inflation expectations and increasingly-volatile weather due to natural climate cycles is the recipe for a much longer and larger rally.

GKX Daily Chart

GKX Daily Chart

For at least the past 12 months we have argued that owning the stocks of fertilizer producers such as Mosaic (NYSE:) and Nutrien (NYSE:) is the best way for most people to participate in the agricultural (‘ag’) commodities bull market that potentially will unfold during 2020-2022. That continues to be our view. Although the fertilizer producers only provide indirect exposure to rising prices for ag commodities, obtaining direct exposure via the stock market involves owning ETFs that usually suffer substantial value leakage due to the “futures roll.”

The following daily charts show that the aforementioned stocks have rebounded strongly from their March-2020 lows but remain well below their highs of the past 12 months.

MOS Daily Chart

MOS Daily Chart

NTR Daily Chart

NTR Daily Chart

Not evident on the above daily charts is the fact that MOS and NTR are trading at small fractions of their 2008 peaks. The following weekly charts provide some additional perspective.

MOS Weekly Chart

MOS Weekly Chart

NRT Weekly Chart

NRT Weekly Chart

We think that the risk/reward ratios of these stocks are roughly equivalent, with NTR being less risky and MOS offering greater leverage. Both companies were very profitable in the June-2020 quarter and should become even more profitable over the quarters/years ahead.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Source link

Steve Saville


Leave a Reply

Your email address will not be published. Required fields are marked *


About us

InvestLab is a financial services technology company focused on the global trading market. Founded in 2010 in Hong Kong, the company develops trading, market data, and social research products that enable individual investors and small to mid-size brokers to access global markets. We provide brokers and financial institutions cross border capabilities for retail investors into 43 markets globally.


CONTACT US

CALL US ANYTIME