With equity markets reversing to the upside, we have some big movers (up and down!) in the agriculture space. Some press releases have triggered breakouts, and earnings misses have caused some double digit breakdowns.
If we look at the global agriculture ETF COW, bulls have a lot to celebrate and look forward to. I see a trend reversal. Not only have we broken back above a trendline, but we have also closed above the resistance zone just above $66. A move to $72 is in the cards as long as we remain above $66.
When it comes to agricultural commodities, we are seeing some positive things on many charts, but wheat is my favorite. This is a trade I am likely going to be putting on soon. The only thing preventing me is the lack of a breakout. We close above 824 and a reversal is on. For those who do not play CFDs or futures, consider trading the Teucrium ETF WEAT. The setup is similar to the CFD.
Here are the top agriculture stocks of August 5th 2022, and some of the best setups to keep on your watchlists!
AG Growth (AFN.TO)
Here’s a stock which has already broken out of a basing pattern, and has the catalyst of earnings upcoming. The big break occurred once price closed above $32, and as long as we remain above this level, we should expect more highs. Even a move back to $38 in the medium term if this trend holds.
Earnings on August 10th 2022 will be the catalyst. That news will tell us if we continue to make new highs, or if the trend breaks down below $32.
Itafos is one I have had on my watchlist for quite some time. The stock hasn’t had much news lately, and is clearly in a downtrend. This changed once we began testing the major support level at $1.50.
The stock has now begun to range. Stage 1 for those of you who adhere to Stan Weinstein’s stage analysis. Just a fancy way to say basing and a potential new uptrend. The trigger? A close above $1.80 is what initiates the new trend. The stock has now been ranging for almost a month. We are still holding above support which increases the breakout probability in my opinion. Now we just have to be patient. With the lack of press releases, the stock could fail to trigger a break and rather, close below support.
Verde Agritech (NPK.TO)
A reader favorite returns on my agriculture roundups! Verde Agritech is a stock I am very optimistic about given what management has achieved, and the macro catalysts for fertilizers globally. Be prepared to hear more about fertilizer shortages and issues. Not just geopolitics, but what the governments of the Netherlands, and possibly Canada, are doing.
Verde recently completed a redomiciliation process to Singapore. New Verde shares began trading on August 2nd. The trading symbol has not changed.
The stock recently reclaimed a support level, and triggered a breakout above $8.00. Some would say we have an inverse head and shoulders pattern, but I do not think that is really the case given where this pattern formed.
But we still have something to work with. A close back above $8.00 triggered a breakout, and with the pullback, the bulls are stepping in to defend the $8.00 level. As long as this holds, a return to previous record highs is next. And then… new all time record highs.
Bee Vectoring (BEE.CN)
Bee Vectoring announced the closing of its first California sales order of its proprietary Vectorite with CR-7 biological fungicide and natural precision agriculture system for one of the world’s largest berry companies.
“This first sale milestone is a key component of BVT’s strategy to expand into the state of California, which is the largest growing region and our most significant market opportunity in North America,” said Ashish Malik, CEO of BVT. “The opportunity in California includes several crops with an overall growing season which spans up to 10 months of the year, thus representing significantly larger and more diversified annual revenue streams for BVT.”
“The customer is a large, influential grower in the Watsonville and Salinas area,” said Ian Collinson, Sales Manager at BVT. “Their successful three-month demonstration trial of the BVT system last year and the resulting positive data were the main reasons for the customer to continue their business with BVT. Trial results showed the BVT system helped control fungal disease during the bloom period, which lead to healthier berries post-harvest that translated into real value for the berry company in higher quality packed berries and increased marketable yield.”
Be sure to check out Maddy’s five easy questions with Bee Vectoring CEO Ashish Malik:
On the chart, Bee Vectoring is still trying to confirm a reversal. After breaking down below $0.19, we have formed new all time record lows at $0.17. In the medium to long term, we really want to reclaim $0.24. A close above $0.195 would be a step in the right direction of achieving this. With the current news, perhaps this will lead to a flow of more orders which will be the catalyst to get us back over $0.24.
Water Ways Technologies (WWT.V)
Another reader favorite seems to have triggered a reversal!
The major news to trigger a gap up in the stock price? The announcement of three new purchase orders for water and irrigation projects in Africa.
The first project is planning, supply and installation of an advanced net house, trellising and smart irrigation system for cultivation of Sorghum in Ethiopia. The project is co funded by an Ethiopian Academic Center and the University of Queensland, Australia. The value of the project is C$ 117,000.
The second project is a complete water system for intensive fish farming in Ghana with a total value of C$98,000.
The third project is a vegetable hydroponic smart irrigation system in South West Africa with a value of C$107,000.
Water Ways expects to recognize revenue from these projects by the end of 2022.
A support level has held and provided a platform for a bounce, and a downtrend line has been broken. Not to mention the gap from the recent news. Bullish confluences in my book. Water Ways stock looks ready to rock, and this new uptrend remains in motion as long as bulls can keep prices above $0.20. If we close below $0.20, the gap would be filled which would be a bearish sign.
Karnalyte Resources (KRN.TO)
Potash bulls, Karnalyte Resources is the stock you want to keep an eye on. The company recently announced the successful completion of a rights offering, which raised approximately $3.9 million. The proceeds will be used to develop and advance the company’s flagship Wynyard Potash Project. The next stage is completing the update to the NI 43-101 technical report before pursuing project financing.
The strategic partner and significant shareholder is India’s Gujarat State Fertilizers and Chemicals Limited (GSFC).
“We are very pleased with the outcome of the Rights Offering and would like to thank all shareholders who participated and gave their vote of confidence in unlocking the high potential of the Wynyard Potash Project,” said Danielle Favreau, interim CEO of Karnalyte. “This is great progress for our Company as we continue taking the necessary steps to maximize value for all stakeholders through construction of what will become Karnalyte’s flagship project.”
On August 3rd 2022, GSFC acquired 5,444,852 common shares under the basic subscription privilege and 3,655,148 common shares under the additional subscription privilege for a total of 9,100,000 common shares of the Issuer at a price of $0.35 per common share.
Immediately prior to the completion of the Rights Offering, GSFC owned, directly and indirectly, or exercised control or direction over 16,334,558 common shares, representing approximately 38.73% of the then outstanding common shares.
GSFC acquired the additional common shares for investment purposes and may acquire or dispose of its common shares of the Issuer in the future but has no current plans or intentions to do so.
The stock saw wild price action on this news. A 55% move from the open on August 2nd, to the highs on August 3rd. Note the resistance at $0.565 which was rejected. This is why these support and resistance levels are so important. They provide us with structure.
In terms of price action, we do need to close above this resistance for any more upside. If this happens, we have a lot of room to the upside. The new trend remains intact as long as we remain above $0.375.
International Zeolite (IZ.V)
We talked about this pattern breakout on International Zeolite in a previous edition of the Agriculture sector roundup. Now we have the fundamentals to back the technicals.
International Zeolite, an international producer and marketer of zeolite products that provide green solutions for key environmental issues, announced the finalization of its amended agreement with Progressive Planet Solutions (PLAN) to purchase a 50% interest in the company’s Bromley Creek zeolite deposit.
“We are excited to expand our relationship with Progressive Planet,” says Ray Paquette, CEO of International Zeolite. “The purchase of 50% of the Bromley Creek deposit allows increased production and further development of zeolite products for the benefit of both our companies and provides regular quarterly payments to International Zeolite. This Agreement signifies PLAN’s serious commitment to developing the zeolite market. It’s a win-win agreement to address the ever-growing demand for natural zeolite.”
The amended agreement outlines the payment details for the 50% interest for $725,000. $101,933.76 has already been paid to International Zeolite, with PLAN now holding a 7.03% interest in the Bromley Creek zeolite deposit, located in British Columbia. The remaining $623,006.24 is payable in 20 equal quarterly installments to March 2027, for the remaining 42.97% interest. In addition, International Zeolite will receive a net royalty payment of $4.50 per metric tonne of product mined and removed from the mine.
The amended agreement also formalizes the option granted by International Zeolite to PLAN to acquire up to a 50% interest in a separate group of mineral claims known as the “Sun Group” also located in British Columbia, for an additional purchase price of $725,000.00, exercisable until July 26, 2027.
A flag pattern breakout. The upside momentum remains intact as long as price holds above this broken trendline. We have been seeing some resistance here at $0.175 with the stock struggling to confirm a close above in the last few days. A close will get the momentum going, and a move up to $0.25.
Maple Leaf Foods (MFI.TO)
Canadian company Maple Leaf Foods reported Q2 earnings. Here are the highlights:
- Total Company sales grew 3.1% to $1,195.1 million, with an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)(i) Margin of 6.2%.
- Meat Protein Group sales grew to $1,160.2 million, an increase of 3.8% year over year. Adjusted EBITDA was $104.1 million, and Adjusted EBITDA Margin was 9.0%.
- In the Plant Protein Group, the Company recorded an $18.6 million restructuring charge and took steps to rightsize its Selling, General and Administrative expenses (“SG&A”) spend as part of the journey towards Adjusted EBITDA neutrality in the second half of 2023.
- Capital expenditures were $89.7 million and consisted mainly of Construction Capital(i) of $49.9 million, primarily related to the London, Ontario poultry facility.
- Meat Protein: Expect mid-to-high single digit sales growth in 2022, and Adjusted EBITDA Margin expansion to achieve a target range of 14% – 16% when market conditions normalize.
- Plant Protein: Targeting to deliver neutral or better Adjusted EBITDA in the latter half of 2023.
“This chaotic and unpredictable operating environment is unprecedented in my 40-year career in the food industry,” said Michael H. McCain, President and CEO of Maple Leaf Foods. “Driven by a post-pandemic economy and the tragic conflict in Eastern Europe, we have been unable to hire adequate people resources to operate our supply chains, experienced unnatural agricultural and trading markets, and realized hyper-inflation that has been challenging to keep up with pricing. While our Q2 results fell short of expectations with an Adjusted EBITDA margin of 9% in the Meat Protein Group, we see signs of these conditions abating. Our commitment to achieve 14-16% Adjusted EBITDA was grounded in the assumption of normal, five-year average market conditions and we are confident we will deliver that once the environment stabilizes, although predicting this timeline at the moment is challenging. Our focus on executing our Blueprint to be the most sustainable protein company on earth is absolute.”
Earnings missed expectations, and the stock got hammered. The CEO’s comments also made investor’s readjust their forward guidance given the ‘unpredictable operating environment’. When it stabilizes is anyone’s guess.
At time of writing, the stock is down 16% for the day.
This is a good example of the technicals looking great and meeting a breakout trigger, but a high risk event changing the trend. In my personal trading and investing, I tend to avoid entering a position when a high risk event is around the corner. I wait until they have gone and passed. Maple Leaf Foods provides a good example why.
Sprouts Farmers Market (SFM)
Sprouts Farmers Market is an example of the opposite end of the spectrum. When earnings go right with favorable technicals.
The company maintained its positive earnings for 2022 with Q2 2022 earnings topping estimates. Here are highlights:
- Net sales totaled $1.6 billion; a 5% increase from the same period in 2021. Net sales growth was driven by an increase in comparable store sales and new stores opened
- Comparable store sales growth of 2.0%
- Diluted earnings per share of $0.57; compared to diluted earnings per share of $0.52 in the same period in 2021
- Opened 2 new stores and closed 3 stores due to lease expirations, resulting in 378 stores in 23 states as of July 3, 2022
- Ended the quarter with $289 million in cash and cash equivalents and a $250 million balance on its $700 million revolving credit facility
- Repurchased 2.4 million shares of common stock for a total investment of $65 million
- Generated cash from operations of $209 million and invested $46 million in capital expenditures, net of landlord reimbursement, year-to-date thru July 3, 2022
“We are relatively pleased with our financial performance year to date and continue to be encouraged by another quarter of positive traffic,” said Chip Molloy, chief financial officer of Sprouts Farmers Market. “We are cautiously optimistic that we can continue to successfully navigate the remainder of the year during these highly inflationary times while simultaneously pushing forward with our long-term strategy which is supported by our strong cash generation.”
Now that’s bullish. A nice breakout of a cup and handle pattern post earnings. The stock is up 14% at time of writing.
But the most bullish thing is that the stock is looking likely to close above $30. Why is this so important? Well, it would fill in the gap which developed with a breakdown on May 5th. Gap fills are bullish, and I can see the stock eventually reclaiming $35 with this momentum.