Wall Street goes bargain hunting in the farm bill

Tag: fodder additive
Money managers, including hedge funds looking to scoop up battered stocks on the cheap, have told their Washington-based consultants to keep close tabs on the farm bill. High-flying Wall Street financiers hardly seem the sort to follow the mind-numbing farm bill negotiations, which have been swinging from mini-breakthroughs to near-collapse for months. But the talks have grabbed their attention, according to sources in the political intelligence business, because the legislation could prove a boon to ethanol producers, timber companies and farm equipment manufacturers. “There’s a lot of interest in what might end up in the final bill,” said Mark McMinimy, an analyst with the Stanford Group in Washington. “People are sitting on pins and needles waiting to see what will happen.” Wall Street investors have long traded on information flowing from Washington. But their hunger has grown in recent years with the hedge fund industry’s boom, making money managers more eager for any tips on legislation or regulatory changes that will give them an edge in the markets. They are hunting especially for opportunities to bet on a stock likely to fall or rise sharply on a policy action. Businesses heavily concentrated in a sector affected by the policy change are prime targets. The farm bill has given them plenty of fodder for such investment plays. Moreover, the uncertainty swirling around whether a bill will be enacted this year has intensified Wall Street’s interest because it has made it difficult for markets to discount the impact of the legislation. House and Senate negotiators have been tangling for months over the bill. Unhappy with the latest proposal from Congress, the Bush administration on Tuesday called for a one-year extension of the current farm program, fueling speculation that there will be no reauthorization passed this year. Wall Street investors are intensely interested in the energy provisions tucked into the $2.4 billion tax package the Senate attached to its legislation. The tax package has proved controversial in the House, and investors and their consultants are busy trying to handicap its chances of surviving. Philip L. Fraas, a Washington lawyer who tracks the saga of the legislation on his farmbill2007 blog, says he regularly gets inquiries from people in the financial industry regarding the fate of the energy provisions, which are intended to spur alternative fuels. Having poured money into ethanol plants during the ethanol boom, many investors are now aching from the ethanol bust. They’ve been burned by a surge in the price of corn, the fuel’s main ingredient, and depressed ethanol prices caused by oversupply. The tax package contains a two-year extension of the 54-cent per gallon tariff on foreign-produced ethanol that has been crucial for U.S. producers. Without congressional action, the tariff will be lifted at the end of the year. “Ethanol generally is of huge interest to the market,” said Pete Davis, who runs Davis Capital Investment Ideas. He said his money manager clients were “very concerned” that the tariff could be allowed to expire, opening the floodgates to cheaper Brazilian ethanol. The ethanol tariff has heavyweight supporters in Congress, such as Sen. Chuck Grassley (Iowa), the top Republican on the Senate Finance Committee.