Energy Producers Decline; Meat Producers Gain in Markets

In the last year stocks of rural-based companies that benefit from high energy and farm commodity prices have soared. In the last several weeks, however, those same companies have seen some of their gains pared away.

The Yonder 40 index is meant to measure the rural economy through the stock prices of forty companies that, to a large degree, are based in rural America. But within the 40, there has been a tug-of-war. Energy and farm stocks went up as prices for coal, oil and grain rose. Hurt in the process were food producers, banks and retailers, who suffered as the economy slowed.

The rural economy produces a lot of commodities, however, so the Yonder 40 fared much better than any of the other major stock indexes.

Over the last several weeks, however, the stock prices for energy companies have dropped precipitously. In the last week, Peabody Energy is down by nearly 10 percent. Cimarex and Walter Industries, other big coal producers, are also down.

Meanwhile, some of the food processors — that have been suffering from higher grain prices — have seen a rise in their stock prices, as the stock market rallied last week.

The Yonder 40 still leads the other major indexes. But in the last week, the index of rural stocks lost ground to the rest of the market. The Yonder 40 rose less than a point last week while the Dow Industrials were up nearly 4 percent.

The U.S. Department of Agriculture reported that it expects food prices to climb between four and five percent in 2008 and 2009. Meat prices will lead the price increases -- and meat producers in the Yonder 40 rose sharply last week, recovering some of the large losses they suffered earlier in the year. Smithfield Foods rose 19 percent. Tyson was up nearly 10 percent.

Similarly, the milk producer Dean Foods saw its stock price rise almost 16 percent this past week. Dean Foods is the nation's largest dairy processor and distributor and has also been hit with higher feed costs for milk cows. (Dean is still down more than 20 percent over the past year.) Dean has been able to pass along its higher costs to consumers and this past week the company reported a 72 percent rise in net income, but Dean management says the markets are still unsettled.

To read Bishop's complete analysis, please visit the link at the end of the page.