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Crops and Conglomerates: Hot Trades This Year?

Catherine Holahan
Wednesday, 12 Jan 2011 | 12:45 PM ET

Crops and conglomerates were the focus of the Fast Money Traders Wednesday, early in the session.

Soft commodities were surging after the U.S. Department of Agriculture released a weak crop forecast for corn , soy and wheat. Meanwhile, shares of ITT Corporation were hitting new all-time highs on a Wall Street Journal report that the company would split into three publicly traded entities.

The Softs

The USDA crop forecast was bullish, wrote Kanundrum Capital’s Brian Kelly in his morning note. The USDA predicted that poor weather would cut into crop yields.

The USDA lowered its domestic inventory forecast for wheat and predicted declining reserves for soybeans and corn. Corn and soybeans both had traded limit-up by mid-day.

“There is little room for weather issues since supplies are tight,” explained Kelly. He added that he was looking at fertilizer producers on the news. In general, strong agricultural prices increase fertilizer prices since farmers are incentivized to plant more crops, thus increasing fertilizer demand.

Conglomerates

As Kelly looked to crops, Metropolitan Capital’s Karen Finerman’s attention was on conglomerate break-ups after news of the ITT breakup.

Whereas once the market rewarded companies with myriad businesses, now investors wanted to see that companies could do one thing very well. This is “the rise of category killers,” said Finerman.

ITT shares were up nearly 16% mid-day on news that it would split into three publicly traded companies focusing on aerospace, water management and industrial products, respectively.

ITT is the third company to announce such a breakup in the past several months. Motorola split into two companies – Motorola Mobility Holdings and Motorola Solutions – late last year. The mobility company focuses on handsets while the solutions company focuses on radios and scanners for business. Fortune Brands is also splitting its whiskey, faucets, and golf club businesses into separate entities.


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