Market Overview

China's Approval Could Make Agriculture More Appealing

China's Approval Could Make Agriculture More Appealing

With corn prices at multi-year lows, farmers are cutting costs, downsizing and shifting their focus, which has left agriculture-based businesses struggling to play catch up. But a decision to accept some genetically modified crops in China could mean a revival for the sector.

U.S. Crops Up, Agriculture Prices Down

Two years of better-than-expected corn crops in the U.S. have put pressure on seed companies like Monsanto Company (NYSE: MON), whose success largely depends on the corn seed sales. To combat growing U.S. corn stockpiles, farmers have started dedicating more acreage to other crops like soybeans, though soybean prices have also declined.

Farm equipment sales have also taken a hit as farmers make do with the machines they already have in an effort to keep overhead costs down. Shares of farm equipment producer Deere & Company (NYSE: DE) lost 5.48 percent last year, while irrigation systems supplier Lindsay Corporation (NYSE: LNN) has fallen 3.22 percent in the past six months.

Related Link: China ETFs Start 2015 On The Right Foot

Sector Lows And China's MoA Thumbs Up = Buy?

However, some analysts see the agriculture sector’s current lows as an opportunity to buy, as corn sales could recover in the coming year. A recent decision by China’s Ministry of Agriculture to approve genetically engineered corn produced by Switzerland’s Syngenta AG could see U.S. shipments to the nation resume, something that would diminish stockpiles.

Last year, China began rejecting U.S. corn after Syngenta’s modified corn was included in the shipments without being approved.

Looking Ahead

The decision to allow the biotech corn will likely reopen the nation’s acceptance of U.S. corn exports.

Soybean seed producers Bayer AG and E l Du Pont De Nemours And Co (NYSE: DD) should also see a lift from the decision, as their varieties of modified soybean were also approved by the Chinese Ministry of Agriculture.

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