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Energy And Agriculture Sector Have Close Ties

posted on January 25, 2008

Hello, I'm Mark Pearson. Iinvestors took a ride this week on a roller coaster named Wall Street.

All of the major indices have been trending lower for weeks, but on Tuesday the Dow Jones Industrials plunged more than 465 points shortly after the opening bell, as the market digested news of the Federal Reserve's unprecedented three-quarter-point reduction in interest rates. Stocks rallied later in the day to erase all but 128 points of the loss.

One day later, the Dow roared back posting a gain of nearly 300 points and swinging more than 630 points from its low point to its high in the largest single-day turnaround since July of 2002.

The rally continued on Thursday as House leaders announced bipartisan support of a $150 billion economic stimulus package that would pump funds directly to tax filers and businesses. The Dow tallied a triple digit gain despite a bearish report showing sales of existing home sales plunging by the largest amount in 25 years.

And on Friday, the market ran out of steam and posted a decline of almost 172 points. All told, the Dow gained a mere 103 points for the week after swinging as much as 755 points over four days.

Oil prices, so far, have trended lower in 2008. And while that's a welcome development for motorists, it could be bad news for America's farmers and agribusinesses because of their growing dependence on biofuels.


Energy And Agriculture Sector Have Close Ties

Falling prices have market watchers speculating that stocks in the agriculture and energy sectors may be more closely tied than any time in history. Traditionally, any drop in oil prices has been good for farmers because it reduces the cost of agricultural inputs. But lower oil prices could also mean less demand for ethanol and, in turn, lower prices for corn

That close relationship might help explain a sharp drop-off of agricultural stocks over the last week. Shares Archer-Daniels-Midland, one of the nation's top producers of ethanol, began to plunge last week, days before a global sell-off sparked fears on Wall Street.

Despite the Dow's rebound on Wednesday, shares of A-D-M and other major players in the agricultural sector continued their downward trend. The sell-off served as a harsh reminder to investors that economic uncertainty seems to be spreading from Wall Street to Main Street.

While demand for ethanol has pushed corn prices to near-record levels this year, farmers are dealing with sharply higher input costs. In some areas, anhydrous ammonia has virtually tripled over the past two years. And some growers are pondering a switch to soybeans, due in part, to soaring feritilizer costs.


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