Agribusiness Bulls Led to Slaughter

NEW YORK (TheStreet) -- Through the first months of 2010, the Market Vectors Agribusiness ETF(MOO) has been punished as a storm of bad earnings reports and sliding food prices pressures the fund below its 200-day moving average, but this slide may not be over.

At the close of 2009, MOO was lauded by many as the go-to fund for investors looking for a chance to play a fertilizer industry turnaround in 2010. At the time, the global economy was well on the road to recovery and growth forecast in China's markets was seen as a catalyst for food demand. In order to keep hungry mouths fed, farmers would need to step up yields, providing the fertilizer industry with an ideal window for growth.

Agricultural chemical companies make up more than 45% of MOO's total portfolio, and with Potash of Saskatchewan(POT) and Mosaic(MOS) in the top-10 holdings, MOO appeared well equipped for any such windfall.

Unfortunately the first months of the year have passed with no such boost. Although names including Terra Industries(TRA), CF Industries(CF), Bunge(BG) and Vale(VALE) grabbed headlines when M&A activity heated up early in the year, any benefits from their respective deals have long been wiped away as investors focus on debt issues coming to a head in the eurozone and economic tightening in China.

Rather than living up to the optimistic forecasts for the fertilizer industry, POT and MOS have tumbled 6% and 19%, respectively, in 2010. Once bright, MOO's future is now clouded in uncertainty.

Economic troubles have dented food demand and good weather in some cases has lifted production, and that has sent crop prices, as tracked using the iPath Dow Jones-UBS Agriculture Total Return Subindex ETN(JJA), on a consistent downward slide since the start of the year. Year to date through May 18, JJA has dipped nearly 16%. JJA tracks a collection of agriculture futures products and the fund's basket is largely steered by the prices of corn, wheat, and soybeans, which together account for two thirds of the fund's portfolio. Coffee, cotton, sugar and soybean oil are represented in the remaining third of the fund.

Declining crop prices, however, tell only part of the story of MOO's decline. In recent months, the equity-backed ETF has fallen faster than JJA, due to a barrage of bad news from some of the fund's top positions.