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Agribusiness ETFs Could Be in for Tough 2013


A case can be made that some agribusiness ETFs are laggards relative to the risks this sub-sector presents.

Making matters potentially worse for potash producers is that the crop nutrient has come nowhere close to returning to its pre-financial crisis highs. Back then, potash traded traded over $800 per ton and even flirted with $900.

Of course it can be said that potash probably overshot on the way up and $800 per ton should have never been seen in the first place. However, potash prices are down this year despite higher grain prices.

"To see negative growth in a period of strong, albeit volatile, grain prices suggest to us that… there is lack of understanding of the merits of using potash in some developing markets, where the growth is supposed to come from," according to Credit Suisse. The bank is forecasting Vancouver spot potash prices of $445 per ton next year and in 2014.

Arguably, the market has already started pricing in rough times ahead for potash producers. On average, shares of Agrium, Mosaic and Potash have tumbled 4.83% in the past three months. MOO, by far the largest agribusiness ETF with $5.58 billion in assets under management, has risen 1.5% over that time. Still, that means investors would have been better off with a broader materials ETF such as the iShares S&P Global Materials Sector Index Fund (NYSEARCA:MXI).

MXI, which does have some agribusiness exposure via Monsanto, Potash, and others, is up nearly 4% over the past 90 days. Bottom line: Agribusiness ETFs may not be subject to massive declines in 2013, but with buyers holding the best cards in potash price negotiations, investors would do well to find materials ETFs with reduced potash exposure.

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Twitter: @Benzinga

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