How An Agribusiness ETF Is Dealing With The Trade War

During his Twitter tirade last week, President Trump mentioned his displeasure with the fact that China has not upped its purchases of U.S. farm products as it promised it would as part of trade talks. Those comments affected agribusiness stocks.

What Happened

Not surprisingly, the VanEck Vectors Agribusiness ETF MOO tumbled last week, but with the help of Thursday's 2.32% gain, the lone dedicated agribusiness exchange traded fund is trading modestly higher this week.

MOO, which celebrates its 12th birthday at the end of this month, tracks the MVIS Global Agribusiness Index. That index “is intended to track the overall performance of companies involved in: (i) agri-chemicals, animal health and fertilizers, seeds and traits, from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations (including grain, oil palms, sugar cane, tobacco leafs, grapevines, etc.), and trading of agricultural products,” according to VanEck.

Why It's Important

Agriculture machinery makers, such as Deere & Co. DE and Tractor Supply TSCO, are among MOO's top 10 holdings, underscoring the fund's vulnerability in the face of trade tensions in which agriculture is being discussed.

“China's recently announced embargo on US agricultural imports escalates trade-related risks to the US farm sector, which is experiencing falling sales, prices and land values from previous tariffs,” said Fitch Ratings in a recent note.

MOO allocates about 40% of its weight to the cyclical materials and industrial sectors, groups that have been pinched by the trade tussle, but the ETF also offers some defensive positioning as the consumer staples and healthcare sectors combine for almost 57%/

What's Next

As for what's next, the White House needs to find a way to make nice with China or find other countries to fill the void for American farmers because U.S. farm exports to the world's second-largest economy are tumbling.

“US agricultural exports to China fell dramatically to $9.1 billion in 2018 from $19.5 billion in 2017 as a result of the imposition of Chinese tariffs on US agricultural imports, according to the US Department of Agriculture (USDA),” according to Fitch. “Exports declined an additional 20% in first-half 2019. The decline in exports to China is exacerbating weather challenges, which affect plantings and yields, for the farming sector this year.”

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