Ag markets are "at or close to" their nadir, heralding gains
which will spur recovery in valuations of farm sector shares from levels that
are "close to historic lows", said Skye Macpherson, commodities expert at BlackRock.
Ms Macpherson, director, natural resources at the fund
management giant, flagged the potential for an end to the period of growth in
world grain stocks which had fostered falls of some 40% in prices of corn,
soybeans and wheat from 2012 highs.
"We have never had a fifth year of expansion" in stocks, she
told Agrimoney LIVE.
"That does not mean there will not be one in 2017, but it is
interesting to note what we have seen historically."
'More upside than downside'
The price falls, a result of "the fact that we have had relatively
benign weather for four successive years", meant that there was certainly "more
upside than downside" for grain prices.
Focusing on corn, Ms Macpherson said that Chicago futures -
which stand to average some $3.90 a bushel this year should a trend yield pegged
at 170 bushels per acre be achieved – may come in below $3.80 a bushel if farmers
outperform and achieve a 174-bushels-per acre result.
However, should the yield come in 4 bushels per acre below
trend, that would set the average price at about $4.40 a bushel.
"We have 3% downside, 13% upside," she told the conference,
in London, adding that "whatever yield scenario you use" US corn stocks look
like falling over 2017-18, thanks to lower plantings.
"I think for grain prices, we are pretty close to, or at, the
bottom of the cycle," she said, underlining too that prices were "close to cash
costs of production in many parts of the world".
And a recovery in crop values stands to support shares in
agriculture groups, which have been attributed particularly low valuations by
investors because of the difficulties in making money in an environment characterised
by low crop values, and weak volatility too.
As measured by price-to-book ratios, ag sector share
valuations are at "historic lows", at the kind of levels more common in
companies surrounded by significant concerns.
"Equity markets are pricing them like there is a structural
issue," Ms Macpherson said, terming stock prices "very, very attractive.
"We do not believe there is a structural issue, just a
"When the cycle begins to improve, [sector] equities will
So-called "upstream" companies – such as farm producers and
suppliers, as opposed to "downstream" groups, such as meat producers, which
purchase farm commodities – stand to be particular beneficiaries of a change in
"There is a very supportive environment for the upstream part
of the value chain," she said, raising ag machinery groups as particularly good
This subsector, which include the likes of Agco, CNH
Industrial and Deere & Co, has "managed well" its production over the ag
industry downswing, limiting stocks, and meaning it is well placed to benefit
on a sector revival.