Agribusiness Stocks Lag on Oil Drop

Traditionally, a drop in petroleum prices would mean that farmers paid less to grow their crops, helping boost production and increase supplies for big corporations like Archer-Daniels-Midland Co. More crops also meant higher demand for seeds and other herbicides from the likes of Monsanto Co.

But the growing market for biofuels means that dropping energy prices can pull the rug out from under the agricultural sector. Demand for fuels like ethanol has pushed corn prices to near-record highs this year. But if oil gets cheaper, ethanol might lose its status as rock star of the energy world, and corn prices could drop.

"The agricultural sector and the energy sector are much more closely tied than they have been before," said Pat Westoff, research associate professor with the Food and Agricultural Policy Research Institute in Columbia, Mo.

That close tie might help explain a sharp drop-off of agricultural stocks over the last week. Shares for Monsanto and ADM began to plunge last week, days before a global sell-off sparked fears on Wall Street. Ethanol stocks have also dropped this week while oil prices fell.

Westoff and other analysts said its unclear exactly what caused the drop in agribusiness stocks. The market is still fluctuating wildly and specific reasons behind any stock's fall might not be know for some time. But the impact on farming companies has been clear.

Monsanto's stock, which reached record-highs this year, lost roughly 14 percent of its value over the last week of trading, falling from just over $122 a share last week to close at $104.49 Wednesday. The stock had fallen as much as 22 percent before a late afternoon rally Wednesday.

ADM's stock dropped nearly 8 percent in the same period from $44.50 to $39.40.

Both stocks declined more than the Dow Jones Industrial average, which fell just over 2 percent in that period. The index was down as much as 5 percent Wednesday before the rally, which boosted it nearly 300 points to 12,270.17.

Monsanto spokesman Lee Quarles declined to comment on the stock price's drop, saying its the company policy not to speculate on short-term market fluctuations. ADM spokesman David Weintraub declined to comment for the same reason.