By STEVE BINDER
Illinois Correspondent

VIENNA, Ill. — There’s more evidence these days that agricultural companies are fundamentally sound entities, particularly during downturns in the economy.
Researchers at the University of Illinois recently developed an AgIndex that looks at how well publicly traded ag companies have performed compared to the top 500 companies that make up the Standard & Poor’s (S&P) 500. Since 2007 up to April 1, 2011 – a span of 17 financial quarters – the top 21 publicly traded ag companies posted a collective market value increase of 8.6 percent. For the same period, the S&P 500 dropped by 2.7 percent.

The numbers didn’t surprise 48-year-old farmer Tom Simmons in southern Illinois. The rural Johnson County man, who is on edge these days watching his region take on record amounts of rain, has investments that are primarily with ag companies, particularly John Deere & Co.

“Not that I have a great deal invested, but I’ve always been a big fan of the companies that make up our industry,” Simmons said. “Call it a bias or whatever you want, I’ve just always believed in the businesses that help us do what we do, which is provide feed and food.”

It is the stable nature of ag companies that appeals to Simmons, unlike the sometimes volatile swings that go with certain non-ag companies throughout the United States, he said.

“We’re not big gamblers with our money, that’s for sure. I want to put it where I have a pretty good feeling that it will grow over time,” Simmons said.
The UoI researchers compiled the performances of 21 ag companies, primarily based in the Midwest, that provide goods and services in five main areas: equipment, seed and genetic companies, crop production, first processors and fertilizers.

“The overall goal was to build an AgIndex that measured the change in market value of publicly traded agricultural companies and compare it to the S&P 500, looking at their market values and how they did over time from 2007 up to the first quarter of 2011,” said Clay Kramer, who created the new index with UoI ag economist Gary Schnitkey.

While the S&P tracks the performance of the country’s 500 largest companies, the 21 companies included in the new AgIndex all provide some ag-related goods and services – but they also may operate in other sectors as well, such as construction equipment (Caterpillar).

The 21 included were: AGCO Corp.; Agrium, Inc.; The Andersons, Inc.; Archer Daniels Midland Co.; Art’s-Way Manufacturing, Inc.; Bunge Limited; Caterpillar, Inc.; CF Industries Holding, Inc.; CNH Global N.V.; Corn Products International, Inc., Deere & Co.; The Dow Chemical Co.; E.I du Pont de Nemours & Co.; FMC Corp.; Intrepid Potash, Inc.; Kubota Corp.; Lindsay Corp.; Monsanto Co.; The Mosaic Co.; Potash Corp. of Saskatchewan, Inc.; and Syngenta AG.
“In the first year, we saw a 55 percent increase in ag companies, compared with 2.2 percent from those in the S&P 500,” Schnitkey said. “Year two was the year of the big stock price decline. The S&P 500 declined 35 percent from the beginning of 2008 to the end of 2008 and the ag market fell even further – 48 percent.”

According to the UoI report, researchers evaluated the markets using a geometric mean, similar to an average. “If you invested funds in 2007, this would be your average yearly rate of return,” Schnitkey said. “So 8.6 percent for 2007 through 2010 means you would have had an increase of 8.6 percent in value each year up to 2010.”

First processors didn’t perform nearly as well when compared with fertilizer and equipment companies, Kramer said.

“From the beginning of 2007 to the end of 2010, there was a 2 percent decrease in the crop protection sector and a 4 percent decrease in the first processor sector,” Kramer said. “These sectors did relatively well in the first quarter of 2011, having increases that caused the second quarter 2011 value to exceed the first quarter 2007 value.”

The fertilizer sector outperformed all other ag sectors, according to the report, while the equipment and seed sectors also performed well.

“These firms supply products to farmers, who have generally had above-average incomes,” Schnitkey said. “Farms having above-average incomes likely led to higher demand for fertilizer, equipment and seed and genetic sectors.”
To read the report, visit online www.farmdoc.illinois.edu/manage/newsletters/fefo11_07/fefo11_07.html