The stock market culture of agriculture.

The agricultural boom. Where on earth (no pun intended) did that come from?

Does the fact there are a bunch of New York day traders getting rich off of agriculture stocks strike anyone as odd? There is no one left that is bearish on agriculture. Not a single person. Once the housing crisis started with the down fall of American Home Mortgage, the only good news in the financial journals has been the agriculture sector. I almost want to move to Idaho and buy a farm.

The problem is that the agricultural boom started in 2002, not 2007 when most financial journalists started covering it. Thats right, for the last five years, the small farming towns are getting in so much money that they are buying spinning rims on their tractors.

The rise of Monsanto, Potash, Agrium, and the rest of the usual suspects was when oil prices began to quickly rise in 2002. As a result of the maturation of 3rd world countries, we are seeing an increased desire for high quality food. I do not dispute that. But the demand for fertilizer and herbicides, which has served as an incredible cash cow for these agricultural companies is largely dependent on the price of oil. Here is the profit calculation of a farmer:

Revenue from harvest- Cost of buying and planting seed - Cost of tilling soil - cost of irrigation - cost of equipment - cost of herbicide - cost of fertilizer = PROFIT

Farmers are profiting largely because of high revenue from their crops. What do they do when the revenue from their harvest skyrockets? They spend the next year buying more seed, more energy (oil) tilling their soil, more money on herbicide, more money on fertilizer. But farmers understand there are trade offs. If oil is expensive, you buy more herbicide and fertilizer, instead of tilling your soil. Utilizing herbicides and fertilizer to eliminate weeds and grow your crops are just as effective as tilling your soil.

I can't believe I know this much about farming.

What happens to the fertilizer and herbicide companies when the price of oil goes back down? Farmers will start using their tractors more and herbicide and fertilizer less. At least Monsanto has been smart enough to funnel a lot of money into genetically modified seeds. This sets up Monsanto for long term growth and stability. The other companies are just too obsessed about the absurd amounts of money they are getting to realize that no boom, no matter how essential to human existence, will last.

Honestly, I'm kinda glad the end of agriculture boom is near. I was hoping the increasing price of food would decrease the obesity rate, but apparently people are willing to pay a premium to slowly kill themselves.

Incredible.

-Mansij Hans
Member, Intigril Capital Management

Disclosure: Mansij Hans is employed by Monsanto at the time of publishing of the "The stock market culture of agriculture" article.