Despite Floods, Rural Stocks Continue to Beat Dow, S&P
The economy in rural America isn't doing great — but companies that depend on rural America are doing a heck of a lot better than the rest of the market.
Despite the Midwestern floods and a collapse in stock prices of regional banks, the Yonder 40 — an index of publicly traded companies that reflect the rural economy — continued to outshine the major stock indices.
The week was bad for stocks, and the Yonder 40 dropped nearly 2 percent for the week. But the Dow Industrials fell nearly 4 percent and the Standard & Poor 500 index dropped just over 3 percent.
The Yonder 40 was led this week by energy stocks, which rise with the increasing price of oil. Peabody Energy Corp., the large coal producer, rose 3.5 percent last week, while Penn Virginia jumped nearly 9 percent as the stock was rated as a "buy" by one analyst.
Agriculture is still a "fertile play for investors," according to one Wall Street Journal headline. Monsanto rose last week. The seed and chemical producer has more than doubled in price over the last year. Deere & Co., the equipment maker, announced that flooding in Iowa and Missouri would have only a "minimal impact" on its net income. Some investors still worry that higher steel and energy costs will hurt the profits of firms like Deere and Caterpillar, high commodity prices will continue to encourage farmers to invest in new equipment.
Meanwhile, however, the floods and the soaring prices for grains continued to play havoc with much of the rural economy. An estimated four million acres have been washed out by the flooding in the Midwest, causing an estimated $3 billion in crop losses so far. The federal government is now likely to free up land for planting that had been placed in conservation programs.
Higher grain prices have hurt both meat and ethanol producers. With corn topping $7 a bushel, ethanol producers in Iowa say it is now unprofitable to produce more of the grain-based fuel. Hog and beef growers say the same thing. That's showing up in the Yonder 40, as Tyson Foods and Smithfield Foods are all near the 52-week lows in stock prices. The Tulsa World reported Saturday that high feed costs were keeping cattle out of feedlots. The number of cattle on Oklahoma feedlots was the lowest since last August, according to reporter Rod Walton.
The Wall Street Journal showed how the price of corn has also pushed up the price of hogs — and how some Iowa pork were waiting out the flood.
Flooding has stranded thousands of hogs and there has been a huge effort in Iowa to rescue pigs stranded by floodwaters. Tom Miller, a hog specialist with Iowa State University, told the Wall Street Journal that he was housing 600 rescued swine in a vacant facility he owns. "Normally, we put pigs in a nursery; now I call it an orphanage," he said.
Meat producers and politicians from ranching states are pressing for a reduction in ethanol mandates contained in recent federal legislation.
Meanwhile, the financial crisis has reached Main Street banks. The New York Times reported this week that the credit crisis has ravaged stock prices of regional banks. The stock price of Regions Financial, which is in the Yonder 40, has dropped 67 percent in the last year.
Here is how the full Yonder 40 fared in the week ending June 20, 2008.