In my inaugural Agriculture round up piece, I highlighted my broader macro article on this sector. I gave my reasons for being bullish. Before we ended 2020, Canada’s Food Price Report 2021 stated that Canadians would be paying more for bread, meat and vegetables. Prices were set to rise between 3-5% and the average Canadian household would be spending $700 more for food in 2021.
A recent study confirms climate change and Covid-19 supply chain issues are impacting food prices…but perhaps the official data is underestimating the increase.
According to Statistics Canada, food prices are up 2.7% over the past 12 months. But, new research from Dalhousie University’s Agri-Food Analytics Lab published Wednesday shows the food inflation rate in Canada is closer to 5%. To be honest, I am not surprised that the government may have been caught lying about the data. Tends to happen a lot.
It has been paying to be a vegetarian or a vegan as meat products have become 10% more expensive over the past six months. According to a survey, nearly half of Canadians (49%) said they have reduced their purchases of meat products over the past six months due to higher prices. In Alberta, widely known as the steak capital of Canada, a majority of consumers (57%) acknowledged cutting back on meat since the start of this year.
What interests me is this Bloomberg article is discussing shrinkflation. This has been used in the past to hide rising food prices. Essentially, food prices remain the same, but the portions are smaller. I have seen this while eating out at restaurants.
Canadians have also noticed increasing use of a strategy known as “shrinkflation,” the study found, whereby food producers sell products with less quantities or volume without reducing the price. Almost three quarters of respondents (73.5 per cent) said they were aware of certain food products that have shrunk, despite prices either remaining the same or increasing.
In terms of the factors driving the trend of rising food prices, the study cites “macroeconomic shocks, caused by both unfavourable weather patterns in the northern hemisphere and logistical challenges due to the global pandemic.”
Supply chain disruptions related to the COVID-19 pandemic are widely seen as transitory and should eventually dissipate. The ongoing impacts of climate change, however, could send food prices soaring globally for decades.
Just saying that the reasons I was bullish agriculture back in 2020 are all coming true in 2021. Don’t want to be doom and gloom, but the possibility of some sort of food crisis/issue remains likely given the supply chain disruptions. Europe is undergoing an energy crisis, and China is too. Chinese supply chains are getting impacted so we shall see if this plays any part on global food chains.
Money is flowing in the ag tech space, and I believe we are STILL in the early stages. SemiosBio Technologies, an all in one crop management platform for tree fruit, nuts and vines, raised $102 million in an equity deal led by Morningside Group, a private equity group controlled by billionaire brothers Gerald and Ronnie Chan. This startup, which uses wireless technology and chemistry to prevent the spread of crop-damaging insects, has secured one of the biggest financings in Canada’s clean technology sector.
Let’s look at the futures:
Soy is the story. Soybeans and Soybean Oil are breaking down. Soybean Oil could be lagging.
Lean Hogs are the winner this week, whereas Soybean and Cattle round up the bottom.
Before looking at specific stocks, let’s look at our good ol COW ETF:
A technical break of our trendline. Let’s see if we can build momentum and take us into new record highs. Currently we are retesting the trendline and hope to remain above. Overall Stock Market pressures might invalidate this breakout.
Tyson Foods (TSN)
One of the biggest moves this week has been Tyson Foods. Tyson Foods, Inc., together with its subsidiaries, operates as a food company worldwide. It operates through four segments: Beef, Pork, Chicken, and Prepared Foods. The company processes live fed cattle and live market hogs; fabricates dressed beef and pork carcasses into primal and sub-primal meat cuts, as well as case ready beef and pork, and fully-cooked meats; raises and processes chickens into fresh, frozen, and value-added chicken products; and supplies poultry breeding stock; sells specialty products , such as hides and meats. It also manufactures and markets frozen and refrigerated food products, including ready-to-eat sandwiches, flame-grilled hamburgers, Philly steaks, pepperoni, bacon, breakfast sausage, turkey, lunchmeat, hot dogs, flour and corn tortilla products, appetizers, snacks, prepared meals, ethnic foods, side dishes, meat dishes, breadsticks, and processed meats under the Jimmy Dean, Hillshire Farm, Ball Park, Wright, State Fair, Aidells, and Gallo Salame brands.
Regular readers recall my interest in the futures for lean hogs and feeder cattle…this is the one to play especially for meats, and rising meat prices. There are some legal issues on going which are beyond the scope of this post, but be aware of that. Lot of attention on this stock. Some even claim its a stock that will outperform the S&P, but if we are bullish agriculture, we can make this claim for a few other underappreciated and under the radar stocks.
Technically, we had a huge pop on Wednesday. We shall see if we can take out recent highs of $82 for more momentum follow through.
United Natural Foods (UNFI)
Following the same theme of great earnings, United Natural Foods, a company that distributes natural, organic, specialty, produce, and conventional grocery and non-food products in the United States and Canada, surpassed Q4 earnings estimates taking the stock to 52 week highs. Here are some highlights:
Fiscal fourth-quarter net income totaling $43 million, or 69 cents per share, down from $53 million, or 89 cents per share, last year. Adjusted EPS of $1.18 beat the FactSet consensus of 80 cents. Sales of $6.735 billion were down from $6.767 billion and below the FactSet consensus for $6.850 billion. For fiscal 2022, United Foods is guiding for sales of $27.8 billion to $28.3 billion, EPS of $3.60 to $3.90 and adjusted EPS of $3.90 to $4.20. The FactSet consensus is for sales of $27.831 billion and EPS of $3.38.
Nutrien (NTR.TO)
Nutrien is a company regular readers are well aware of. I want to quickly highlight the chart:
Breakout into new record highs. What I am watching for is institutional buying. We tend to see multiple green candles in a row after breakouts IF major institutions are buying. Take a look at Loblaws (L.TO) and many tech stocks (FB, MSFT, AAPL etc) for examples of this. Major momentum follows. Bullish above $80, and I just have a feeling this gets a momentum run higher.
Ag Growth International (AFN.TO)
Ag Growth International Inc., together with its subsidiaries, manufactures and distributes grain and rice handling, storage, and conditioning equipment in Canada, the United States, and internationally. It offers portable handling equipment, such as portable augers, conveyors, grain vacs, post pounders, seed treaters, and accessories; and permanent handling equipment, including bucket elevators, chain and belt conveyors, enclosed belt conveyors, distributors, feed handling equipment, screw feeders and conveyors, and spouts and connections. The company also provides storage and conditioning equipment comprising grain and bolted bins, hopper bins, smooth wall bins, temporary storage equipment, unloads and sweeps, water tanks, secondary containment systems, fuel tanks, flat storage buildings, mixed flow dryers, fans and heaters, aerations, airaugers, aeration floors, vents and exhausters, stirrings, and accessories. It provides its equipment solution for agriculture bulk commodities, including seed, fertilizer, grain, rice, feed, and food processing systems.
When it comes to a technical set up, AFN.TO is one of the best. It meets much of my market structure criteria. The critical points are a long downtrend, and finding support at a major support zone. The final cherry on top is the printing of a double bottom pattern. What we need is for this reversal pattern to trigger. We need a break and close above $30.00. A break and close and a new uptrend is in the works. $38 and higher is what I would target. Looks good especially if we get more headlines on food prices and supply chain issues. Oh, and they pay a dividend for those wanting a stock to pay you while you hold.
MustGrow Biologics Corp (MGRO.CN)
MustGrow is a publicly traded agriculture biotech company focused on providing natural science-based biological solutions for high value crops, including fruits & vegetables and other industries. MustGrow has designed and owns a U.S. EPA-approved natural solution that uses the mustard seed’s natural defence mechanism to protect plants from pests and diseases. Over 110 independent tests have been completed, validating MustGrow’s safe and effective signature products. The companies stock price has been making waves among agricultural traders. Rippy rippy price action.
And management is getting funds for furthering the companies progress, and provide catalysts for shareholders. MustGrow has upsized its previously announced $2 million CAD non-brokered private placement to 2.7 units for gross proceeds of $6.9 million CAD at a price per unit of $2.60. Ira Gluskin and Gluskin-related parties have subscribed to invest C$1.0 million in the Private Placement under the same terms and conditions.
Big news and backing for MustGrow. The stock is ripping and is set to close into record high territory.
Organto Foods (OGO.V)
Organto Foods this week announced the launching of a range of “I AM Organic” branded products with Gorillas, Europe’s fastest growing company in instant on-demand grocery delivery. The company, a leading provider in organic and value-added organic fruits and vegetables, announced it signed a letter of intent to acquire 100% of the outstanding shares of Beeorganic, a privately held Dutch corporation, which is a year-around provider of fresh fairtrade organic bananas with sales in the Netherlands, Belgium and France.
Chart wise, Organto is still consolidating between our trendlines. More importantly is the support at $0.40. It is a strong flip zone and if that breaks, not only do we break support but drop under the trendline. Bulls want to hold this zone.
Verde Agritech (NPK.TO)
Verde is an agricultural technology company that develops and produces fertilizers. The company recently has revised its 2021 revenue guidance to R$90 million, and disclosed that the construction of Plant 2 began in August 2021 with it reaching commercial production by Q3 2022. Plant 2 will have an operational capacity of 1,200,000 tonnes per year, raising Verde’s overall production capacity to 1,800,000 tpy.
“The Company is sold out until mid-November 2021, with new orders being pushed for delivery thereafter. Plant 2 will ensure a 200% increase in production and will be essential to help meet the market’s growing demand for Verde’s products. We are proud to be able to fund its construction through cash flow and debt, therefore avoiding the issuance of new shares”, declared Cristiano Veloso, Verde’s Founder and CEO.
Chart wise, I like it. We spoke about the breakout trigger above $1.10. That is support going forward. We pulled back to retest twice, and buyers stepped in. Now it is all about forming the next higher low which requires a close above $1.40 to confirm. Good news and the chart is in an uptrend.
CO2 Gro (GROW.V)
GROW’s proprietary CO2 Delivery Solutions™ technology is revolutionizing the global 600 billion square foot protected agriculture industry. They create a saturated CO2 solution that when misted onto plants provides growers that cannot gas with CO2 the opportunity to increase plant yields by up to 30% and profits by up to 100%. Applying saturated CO2 also suppressed the development of pathogens such as E.coli and powdery mildew, helping to reduce crop losses.
This is a company regularly featured on my Agriculture roundups. Their product is disruptive tech, and the chart looks intriguing.
Recent news details a US $30,000 sale to an Arizona greenhouse grower. Commercial terms include a payment on order with the balance due upon the completion of the first harvest. The client has requested their name, crop grown and greenhouse footprint to be kept confidential for competitive reasons.
Technical wise nothing has changed from previous round ups. We are still within the range. Buyers are entering at support, but the stock needs a breakout above $0.325 for more momentum.
WaterWays Technologies (WWT.V)
A company that doesn’t need an introduction. Has been featured every week. The stock is moving, and the good news keeps pouring in. Two weeks back, Water Ways announced orders totaling $1.3 Million CAD. This week, an announcement of three smart irrigation project orders totaling $570,000 CAD.
- A C$320,000 project to design, deliver and build a smart irrigation and fertigation system for a 20 hectare (approximately 50 acres) blueberry cultivation facility in Mexico.
- A C$150,000 project to build a smart irrigation system for a 1 hectare (approximately 2.7 acres) vegetable greenhouse facility in China.
- A C$100,000 project to build smart irrigation and fertigation project for a 26 hectare (approximately 70 acres) apple grove in Ontario, Canada.
Water Ways stock still is holding above a key support zone above $0.235. At time of writing we remain above, but could close at the end of the day. This is a stock for the long term. A drop could see prices retest the $0.175 support. A great opportunity to add to our position for the long term. Like the company, like the good news, like the value they provide.
Avivagen (VIV.V)
Avivagen is a life sciences corporation focused on developing and commercializing products for livestock, companion animal and human applications that, by safely supporting immune function, promote general health and performance. Think non-antibiotic feed supplements for optimal livestock productivity. Farming for the future as they say on their website.
The company released Q3 2021 results. Here are some highlights:
- Total of 8 tonnes in OxC-beta™ orders secured or shipped during the quarter
- Secured a 4.4-tonne order for OxC-betaTM Livestock from UNAHCO
- Secured a 500 kg order for OxC-betaTM Livestock from Transformadora
- Shipped 3.5-tonne order from the previously announced 64-tonne recurring order
- Moved closer to regulatory approval in Vietnam and China
- Leveraging existing experience, initiated search for new distribution partners in North America and other key markets globally
During the quarter Avivagen shipped the first 3.5 tonnes of its previously announced 64 tonnes recurring order. However, the revenue on this shipment will be recognized when payment is received, meaning the revenue associated with this shipment is not reflected in the reported Q3 results.
Chart wise, Avivagen will be one I keep on the radar. Sure, it is close to all time lows around $0.30, but I am more interested on a reversal. Far away from that right now, as my criteria is a break and close above $0.45. If we can reverse from here without touching $0.30, I would be a happy camper. That would set up an inverse head and shoulders pattern.
To end of the week, I just want to show you the charts of two big companies. Deere and AGCO. Both are falling under pressure due to overall stock market conditions.
Both had a triangle pattern we were watching last week. Both broke and closed below the trendline. Both pulled back to retest the broken trendline and saw sellers step in. Does look bearish and hints at another leg lower…just like US Stock Market indices.
