The Flying Cow

Lately things have been flying high for Cow. It is currently trading at a 52 week high and appears to be continuing on a highflying trajectory as we approach year-end. Over the last six months COW has basically flat lined and fluctuated around its 50 day moving average. It has fluctuated above and below the 50 day moving average for both briefly and in small amounts until recently.

COW is the Claymore Global Agriculture ETF (exchange traded fund). It is composed of 35 stocks from the U.S., Canada, Japan, Switzerland, Chile, Brazil, Mexico, Netherlands, China and Caymen Islands. The companies operate in crop production, livestock, farming, agriculture products, fertilizers & agriculture chemicals, construction, farm machinery, packaged foods and meats. The results seek to mimic the performance of the MFC Global Agriculture Index. The current average P/E is 10.7X and the dividend yield is 1.47%.

Technically, the current price crossed the 50-day moving average on November 5th at about $17.51. It has continued it’s sharp ascent for the last 2 weeks of trading days with relative strength rising and a positive signal from MACD (moving average convergence divergence). From a longer term perspective the next point of resistance is at about $20 and support is at about $17. Cow looks bullish from a technical perspective.

Fundamentally I like the argument for agriculture as we see rising food demand because of changing appetites and rising incomes in emerging markets. The November 19th edition of The Economist had an interesting article “If words were food, nobody would go hungry” from the Economist print edition. It argues that we could see another price spike like 2007-2008 due to structural imbalances like food demand rising because of changing appetites and rising incomes in emerging markets. In addition biofuels are still competing with food crops for available land and yield growth in cereals is declining. The number of undernourished in the world has gone up dramatically in the last year. Compounding this problem is growing distrust of world trade where countries are shifting their focus to self-sufficiency due to scepticism about future trade in agriculture between countries. The sub headline is “This little piggy didn’t go to market”. Maybe this is the reason the COW is able to fly.