This is what happens to commodity producers when prices crash and we are about to see the same thing among farmers and their suppliers.
Al Root at Barron's nails the dynamic, March 5:
Lithium miner Albemarle will raise some $2 billion by selling new convertible preferred shares. The cash will help fund capital spending.
Shares of lithium miner Albemarle are falling because the company is raising more capital, and shareholders are wary of the potential dilution.
Monday evening, Albemarle announced it was selling up to $2 billion in depositary shares that represent a 1/20th interest in a share of series A mandatory convertible preferred stock.
The wording might seem a little odd but, essentially, the company is offering new convertible preferred stock. The conversion premium, dividend, and other terms will be determined when the deal prices.
In early trading, shares were down 13.4%, at $115.30. The S&P 500 and Nasdaq Composite were off 0.9% and 1.8%, respectively. Shares were on pace for their largest percent decrease since Feb. 17, 2022, when they fell 19.9%, according to Dow Jones Market Data.
Capital spending “requirements virtually demand this capital raise,” wrote Piper Sandler analyst Charles Neivert in a Monday report. “Shares are likely to be under significant pressure on this news, which in our view indicates an inability to fund these projects considering the current and possible near-term future pricing for lithium products over the next two years.”
Lower lithium pricing is pressuring cash flow. Benchmark lithium prices are off about 70% over the past 12 months, falling to roughly $15,000 per metric ton. Wall Street projects a cash use of about $400 million in 2024....
....MUCH MORE
The stock closed down $23.80 (-17.87%) at $109.40. In after-hours trade it has recoverd a half-a-buck.
And the farmers?
From Creighton University's Heider College of Business, February 15:
Rural Mainstreet Economy in Negative Territory for Sixth Straight Month
44% of Bankers Reported Worsening Farm Finances
February 2024 Survey Results at a Glance:
• For a sixth straight month, the overall Rural Mainstreet Index sank below growth neutral.
• Almost three-fourths of bank CEOs named low farm commodity prices as the biggest risk for farms in 2024.
• More than four of 10 bankers named falling farm commodity prices as the biggest risk for community banks in 2024.
• Approximately 44% of bankers indicated that the financial positions of farmers in their area had weakened over the past six months.
• Farmland prices expanded for the 51st straight month.
• The farm equipment sales index slumped below growth neutral for the eighth time in the past nine months....
....MUCH MORE
There are only a few direct ways to trade farm country, I think it's three REITS.
However, the secondary and tertiary trades, inputs such as implements and fertilizer or finance like local/regional banks offer exposure on one side or the other.
When you see action like this (1-year, weekly prints) via FinViz (also on blogroll at right):
You get action like this in the biggest machinery maker:
note triple top over the two years shown.
A couple of headlines here on the blog:
November 22, 2023 Agriculture: "Deere gives downbeat profit forecast as high borrowing costs pinch demand" (DE)
February 20, 2024: USDA predicts major drop in farm income for 2024"
February 21, 2024: Responding To The Fall In Farm Income, John Deere Introduces Farm Implements as a Service (DE; FIaaS)
The effect gets even more pronounced in the smaller input suppliers.
If this continues for much longer there is going to be a transfer of the farmland from indebted owner-operators to funds and corporations paying cash but much less of it than would have been expected even one year ago.
Based on historical comparisons including "Raghuram Rajan on The Boom and Bust in Farm Land Prices in the United States in the 1920s", the 2024 growing season could be make or break for farmers who have, or who will have to, take on new debt or refinance existing debt at much higher interest rates.
Or, if this is the bottom, maybe smaller fertilizer-maker Intrepid Potash goes back to $120 from today's $21.14:
With March 15 approaching, let us turn to the counsel of commodity speculator Bill Shakespeare:
There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves
Or lose our ventures.
—Julius Caesar, Act 4, scene 3, line 249
The Folger Shakespeare
So guess right, ride the tide and it is fortune. Guess wrong and it is miseries and loss.
To Celebrate Shakespeare's 450th Birthday: Investing Tips From the Bard
But keep in mind:
"Shakespeare: tax evader and food hoarder? "
William Shakespeare: Annuity Beneficiary
