Machinery dealers, meat packers likely to suffer

While U.S. crops of corn and soybeans wilt in the worst U.S. drought in a half-century, winners and losers are emerging in the agriculture sector of the Toronto Stock Exchange.

Shares of Agrium Inc. and PotashCorp of Saskatchewan are up 21 per cent and eight per cent since June 1, lagging far behind the spike in corn.

High grain prices typically prompt farmers to apply more fertilizer to maximize the next crop, but the blow to U.S. farmers’ incomes may be so severe that some will forgo autumn potash applications and put off machinery buys, said Don Coxe, adviser to the Coxe Global Agribusiness Income Fund.

The drought is potentially devastating to meat producers because farmers pay more for feed grain and may reduce their herds, which boosts costs for packers.

Maple Leaf Foods CEO Michael McCain warned recently that the U.S. drought could boost food prices over several years, and the Canadian pork and poultry processor and baker would try to pass on cost increases to consumers.

Maple Leaf’s stock had dropped steadily since spring, but better-than-expected second-quarter earnings last week have helped it recover some of its value.

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