It is a sea of red. Equities are falling just as I predicted in my Market Moment article a few weeks ago. The charts don’t lie. Unfortunately, I do expect some more pain. It is time to look at some sectors that will benefit in the long term. Agriculture is one of them. I do believe there are other factors which impact harvests. Unpredictable weather changes, supply chains and yes, geopolitics. I do hope I am wrong, but it appears as if a food shortage/crisis is developing. Just recently in the US, we have found out there is a baby formula shortage. It has gotten to the point where US politicians are now questioning whether $40 Billion aid should be sent to Ukraine when the US has problems.
Perhaps some positive news is the fact that Russia is expecting a large grain harvest. A potential record harvest which, according to President Putin, would see Russia increase wheat exports. These exports would make up for Ukrainian exports to the Middle East and Africa.
Russia currently expects to harvest 130 million tonnes of grain in 2022, including 87 million tonnes of wheat, Putin told a meeting of top economic officials in Moscow. Russia produced a record grain crop 133.5 million tonnes in 2020, including 85.9 million tonnes of wheat. The crop was smaller in 2021.
Problems with sanctions? Reuters has reported that: Russian exporters have largely managed to resolve problems with logistics and the transfer of payments caused by Western sanctions imposed on Moscow since late February and are exporting wheat from the Russian side of the Black Sea and sporadically from the Azov Sea.
There are some in the West saying Russia is weaponizing food. I am against all wars, but to be honest, nobody should be surprised that the Russians will use their agriculture and commodity markets as weapons. A tit for tat after the imposing of sanctions and freezing nearly $300 Billion of oversea Russian foreign reserves. The Russians will do what they have to. Seeing the rise in the Russian Ruble, we are already seeing signs of European nations buying Russian energy and exports even though they put up a tough face against Russia in public. Europe needs Russian energy and agriculture for now.
Now we wait until the July-June marketing season to see if the Russians got a record harvest.
With the clappage in the stock markets and other assets like crypto’s, it might come as a surprise to some that wheat is holding up well. In fact wheat is the second best weekly performer behind the VIX. Ethanol, Coffee and Soybean Oil also held up green for this week.
As a trader, I really like the wheat chart here. This is not investment advice, but personally, the breakout trigger is meeting my trade criteria. It looks like we could be heading back up towards 1360 on futures.
With the pop in Soybean Oil, perhaps Soybean can find some bids here at the 1575 zone. This is a major support area that price has pulled back to. It is not always the case, but the probability of bottoming and reversing tends to occur at major support levels.
This brings me to this week’s agriculture sector roundup. Because of the sea of red out there, I thought it would be better to notify readers of agriculture stocks on my watchlist that are near or at a major support zone. These are stocks that we can then watch for a buy the dip and reversal opportunity. When we are at support, the chances for a bounce increases. What I would be looking for is some sort of range to develop for a few days just to indicate that the selling pressure has exhausted.
RiceBran Technologies (RIBT)
One stock that has actually held up really well this week is RiceBran Technologies (ticker RIBT). When I mean held up well, I mean up over 30% from Monday to the time of writing. Not too shabby. We have seen BIG volume this week.
This company and price action warrants its own article. Watch for this early next week.
Now this is a technical structure I can get behind. Perhaps the best looking in the agriculture space right now. I spot an inverse head and shoulders pattern which was printed and triggered back in March 2022. That was the bottom in my opinion, and the stock remains in an uptrend as long as the stock price is above $0.40. Now we just wait for multiple higher lows taking us to the next resistance around $0.90.
I am liking the bids at $0.50, which is a psychological support zone. I don’t want to get too technical here, but what would get me excited is the breakout above $0.63 to confirm a breakout and the continuation of the higher lows. If we do not get this, the stock could continue to range. That’s okay if you are deploying money for the long term. It is frustrating for swing traders who look at ranges as an opportunity cost of deploying their cash somewhere else. But honestly, with what we are seeing on other agriculture stocks, perhaps a long term hold on RiceBran Technologies is actually the best play right now.
Sprouts Farmers Market (SFM)
Sprouts Farmers Market is one I can get behind as well. The stock did drop after reporting earnings. Revenues were up, net sales and net income were up. It was the forward guidance which got investors worried.
CFO Chip Molloy had this to way:
“We believed year-over-year inflation would begin to dissipate as the year progressed and the declines in units per basket would slowly stabilize,” Molloy said. “However, inflation is not slowing and customers continue to put one to two fewer items in their basket this year than last.”
CEO Jack Sinclair had this to say:
“Inflation is clearly affecting people’s ability to spend as much or to buy as many items as they come into our stores,” CEO Jack Sinclair said during the May 4 call. “We think consumers are spending a little bit more on travel. If you look at the TSA data, it’s pretty clear the increase in travel that’s going on.”
This has led to downgrades on the stock from analysts. The thing is, I believe this inflation forward guidance issue will be repeated by many publicly traded companies. The consumer is getting squeezed from rising inflation and rising interest rates. Yes, spending habits will change. People will save more rather than spend. But this is why I believe food and grocery stocks will hold up well, especially larger supermarkets like Loblaws. People will need to buy food.
The stock gapped down hard, but is finding some support at my major support zone at the $23.30 zone. For new readers, I called the breakout back in November of 2021. A nice reversal pattern which saw the retest being bought up by bulls. A few months later, and after printing recent highs at $35, the stock is back at retesting the major support. We have seen a few days of price action here, and it is leading me to believe a range could develop. This would mean that selling pressure is exhausting. Let’s see if we can get back above $27 and make a run to fill the gap.
Well, we might have a nice small cap reversal candidate with Avivagen. 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.
Recent news came out that Avivagen’s oxidized carotenoid-based feed additive product has received approval for use in China. This comes with Avivagen working closely with COFCO Biotech, a state-owned multi billion dollar company. China was ranked as the number one feed-producing country in the world in the 2022 Alltech Agri-Food Outlook, producing 261.4mmt in 2021. So a huge market that Avivagen has cracked into.
“Core to our success to date has been the strong inroads we’ve made across key Asian feed markets, and we’re thrilled to now have regulatory approval to bring OxC-betaTM to feed producers and commercial operations across China,” says Kym Anthony, Chief Executive Officer, Avivagen. “Having direct access to the world’s largest feed market at a time of continued growth has the potential to be transformative for Avivagen and help drive greater adoption and growth in Asia and worldwide.
Can you say BASED? I really like the structure developing here. A long downtrend now developing into a range indicating selling pressure has exhausted. It looks promising, but we don’t have the trigger just yet. A candle close above $0.25 is what gets the breakout going and a NEW uptrend beginning. Really good looking technicals here. The stock was up over 20% on the release of the China news, so we do have a strong catalyst to back a breakout trigger.
Deveron Corp (FARM.V)
Deveron Corp recently announced a definitive agreement to acquire 67% equity interest in A&L Canada Laboratories East Inc, with an option to purchase the remaining 33% following the three year anniversary of closing. Total consideration payable to the vendor shareholders includes $42.8 million in cash and $7.5 million in the Company’s common shares. This has been amended and the cash consideration payable on the closing of the acquisition will be reduced to $ 8 million and will be paid for by issuing promissory notes of the company to certain vendors.
Under the amended terms of the Acquisition, the aggregate consideration shall comprise of (a) $34.8 million in cash; (b) $8 million in Promissory Notes; and (c) $7.5 million in the Company’s common shares.
A&L is one of the largest soil and tissue laboratories in Canada. A&L operates a 54,500 square foot laboratory with significant growth capacity and 106 employees, including a large R&D group that has produced patented, crop specific yield and disease solutions. A&L processes over 435,000 soil samples per year. Deveron and A&L have cooperated in Canadian soil testing and analysis since 2019 and jointly own and operate Wood’s End Laboratory in the United States.
The acquisition increases Deveron’s revenue to $35.3 million with EBITDA of $8.3 million on a pro forma basis for 2021. Acquisition of A&L confirms Deveron as one of North America’s fastest growing and most profitable agriculture data companies.
The stock broke below support at $0.565 and fell over 30% to the support at the $0.385 zone. The price action is looking promising. As I said, support zones are where we want to see the stock range to indicate the exhaustion of selling pressure. Deveron has ranged here for five trading days. A nice range is developing. What is needed for the trigger is a breakout above $0.425. If so, we can make our way back to reclaim $0.565.
Farmers Edge (FDGE.TO)
Another stock that is up big for the week. From Monday to the time of writing, this stock is up 24% for the week. Impressive. I don’t see news, so this one is moving on technicals.
Surprise surprise. Farmers Edge is bouncing at a major support zone just above $2.00. This is proof of what I mean by buying at support given the exhaustion of selling pressure. The stock actually did range here for six trading days before breaking out on May 11th 2022. There is some interim resistance at $3.18. If Farmers Edge can climb above $4.00, then the party really gets going.