Rural stocks — at least the ones in the Yonder 40 — are beating the pants off the other major market indices in 2009.
The Yonder 40, a collection of forty companies chosen to reflect the rural economy, has risen over 32% since the beginning of January. The Dow Industrials are up only 12%.
The Yonder 40 has nearly doubled the Standard and Poor’s 500 stock index, which has risen 18% since the beginning of the year.
Does that mean the rural areas are doing better in this recession than the cities? It depends on where you live. Our tracking of rural unemployment shows that rural America is not doing appreciably worse overall than urban communities. In much of the Great Plains, the unemployment rates are the lowest in the nation.
There are some connections between the stock prices of Yonder 40 companies and rural communities. For example, unemployment remained low in mining communities during the first portion of the recession. And, in fact, the stock prices of mining companies have fared quite well in 2009.
See the full listing of the DY 40 stocks below and their results for 2009.
Walter Industries leads the Yonder 40 in 2009, rising 176% since the first of January. Peabody Energy has risen by 43% and Cimarex Energy is up 55%.
The stock market believes the demand for coal will increase worldwide. India is importing increasing amounts of coal and is building more coal-fired power plants. The stocks of mining firms have been going up as a result.
The rural stocks that have done the worst in 2009 have been communications (phone and Internet) firms. FairPoint Communications is off 74% and Frontier Communications has dropped 13%.
Only 13 of the Yonder 40 stocks have dropped since the beginning of the year. Most of those fell only slightly — or fell after gains in 2008. Deere, Dean Foods, Alico and Monsanto are all agriculture stocks that have fallen in 2009 along with the collapse of farm commodity prices.
Monsanto has cut more jobs and said profits from its crop-production unit would fall more than the company previously expected. Imports of Chinese substitutes for Monsanto’s best-selling Roundup herbicide are hurting the company. Still, Monsanto expects its gross profits from Roundup and other herbicides alone to be between $650 and $750 million in fiscal 2010.
The agriculture business continues to become increasingly concentrated. The Brazilian meat company JBS SA agreed to buy a majority stake in the Texas chicken company Pilgrim’s Pride Corp. The all-stock deal is worth $800 million and will give JBS 64% of Pilgrim’s stock. Pilgrim’s Pride is now in bankruptcy.
Once completed, the deal will create the second largest chicken processor in the U.S., as the companies that control the U.S. meat market continue to grow larger. JBS has been on an acquisition binge around the globe. The Wall Street Journal reported that the “transaction (with Pilgrim’s) could attract scrutiny from U.S. antitrust authorities, who have said they plan to take a hard look at competition in the agriculture sector. Ranchers and chicken farmers fret that greater industry concentration could undermine their clout and depress prices for their animals.”
JBS tried to buy National Beef Packing last year, but that deal fell apart under scrutiny from federal anti-trust enforcement agencies. JBS purchased Smithfield Foods, another large America beef producer.
Meanwhile, U.S. dairy farmers went to Washington, D.C. last week to protest low milk prices and a lack of competition in the dairy industry. The farmers met with federal antitrust enforcers who have pledged to investigate the agriculture industry.
The price of milk jumped in 2007 and dairy farmers increased the size of their herds. But then the price paid to farmers for their milk dropped 36% in 2008 to the lowest level in three decades.
“Dairy farmers have long complained that they have too few buyers and too little competition for their milk,” the Wall Street Journal reports. Two companies dominate the milk business: Dean Foods of Dallas, a member of the Yonder 40; and Dairy Farmers of America, a cooperative based in Kansas City.
The price paid to farmers is down 36% from a year ago. The federal government reports that diary prices for the consumer are down 10.4% from a year ago.
Senators Charles E. Schumer of New York, Russell Feingold of Wisconsin and Bernie Sanders of Vermont (two Democrats and an Independent) sent a letter to the U.S. Department of Justice in August asking for an investigation of the milk industry to determine if Dean and Dairymen violated federal antitrust laws "Based on our research and conversations with agricultural economists, we believe that one reason for Dean Foods' recent profits may be its ability to exercise monopoly pricing power in many parts of the country," the senators' letter said.
In other news from Yonder 40 companies, Regions Financial Corp. Chief Executive C. Dowd Ritter expects losses from bad loans to begin to decline “late this year or early next year.”
The full listing of the Yonder 40 is below. The chart shows the current stock price and the price and percent change of each stock in 2009.
