Paul Christopherson submits:Summary
- Corn-based ethanol, which always was a mistake, is finally out of favor, and the crop price has fallen to $4/bu.
- This is just the beginning of a long-term secular decline in corn’s fortunes. First, the US fiscal wreckage will put pressure on its subsidy payments.
- Far more important, the cost of US health care will turn the debate to the causes of poor health itself, and the fact of our underlying poor diet.
- The corn-driven American diet is acting like a slow poison on us. With a lot of education, this will become better known, producing a profound change in habits, similar to the smoking cessation phenomenon.
- The resulting drop in demand for corn will mean a big retrenchment in the corn-related industries, negatively affecting:
Stocks
- Potash Corp (POT) ($68.52), Fertilizers
- Mosaic Co. (MOS) ($27.78), Fertilizers
- Archer Daniels Midland (ADM) ($17.53 ), Corn refining
- Corn Products International (CPO) ($22.99), Corn refining
- E.I. duPont (DD) ($29.33), Corn seed, crop protection
- Monsanto Co. (MON) ($71.95), Corn seed, crop protection
- Syngenta (SYT) ($29.28), Corn seed, crop protection
- Deere & Co. (DE) ($30.36), Farm machinery
- CNH Global (CNH) ($12.22), Farm machinery
Our thesis is long term by nature, and will take years to prove out. In the short run, both corn itself and the industry participants (e.g., Deere) may have been oversold, caught up in the forced hedge fund liquidations. So, our present recommendation would be to watch for a recovery, and see it as a selling opportunity in what will become a troubled situation down the road.
Research Perspective
On October 1, this analyst wrote of the dubious merits of the bailout:--
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