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ADM rises 5/16 (3%) closing at its high of the session Fri. 3/16. This note is supplemental to yesterday. It did not sell off at the close, in fact it was under accumulation at its highest level of the day. Why were people willing to pay 15% more than where we bought it Weds.(9 1/16)? Could it be higher fuel costs for farmers requiring higher prices for grain to be passed on to end users(consumers),resulting in greater earnings for ADM? Much the same as higher airline fares caused a spike in airline stocks last week? This should not be construed as investment advice. We do have a stake in this company. All stocks are speculative, but people gotta eat. And if ADM advertises itself as the supermarket to the world, the world sure looked hungry over the last two sessions. Of course this could just be bottom fishing as the stock rebounds from 52 wk. lows(read technical bounce). We don't think so. As mentioned in yesterday's note, the Agriculture Dept. warned of potential drought this week, and the entire grain commodity complex has been under strong upward pricing pressure in recent sessions. This double-whammy of higher fuel costs and dry weather resulting in lower harvests could spell good things for ADM share owners in nearby sessions. This stock is at the lower end of it's range, but conditions for profitability may be improving. In fact the day we got it, it hit a 52 wk low and investors should beware of downward trending stocks. But some of us saw value at this level. There would seem to be little downside risk here, and in fact we may now own an upward trending stock. We are up 15% This stock was trading at 21-22 in '98, and we own it at 9 1/16. What happened to some oil stocks(ESV,NOI,OIL) when their commodity(crude) rose from $12 to $30+ a barrel? Increased fuel costs must be one of farming's largest expenditures, much the same as fuel is the airlines' 2nd greatest expense. These costs will be passed on to consumers in the form of higher fares, and grain prices. Farmers cannot harrow, plant, cultivate, fertilize, harvest and put these grains in the barn at the same level of cost that they did in previous summers. It is that simple. |
