I have watched with interest as Australian Agricultural Company (AAC.ASX) has fallen from $3.50 to $2.50. At that level the stock is at an important support. But before recommending this stock, there is reason for thinking it will fall back to $2.00.
1.
Drought: Although there has been drought relief across Australia, and AAC's areas received good relief rains last year, according to the following
map a great number of the company's farmlands remain in severe drought - that is they have experienced a severe deficiency of rain over the last 6 months.
2.
Stronger AUD: I am expecting a stronger AUD because of rising interest rates in Australia, but stable rates in the USA.
3. Rising costs: The high price of oil is likely to greatly impact on this company's profitability, as well as more general increases in the cost of living.
Drought relief and stronger beef prices offer alot of upside from the $2.00 support, particularly as I expect that after the Nov'08 US presidential elections we will see a return to the 'strong USD' policy, or perhaps better stated 'stronger'. I think there are some austerity measures ahead for the USA. That means - higher taxes (or a return of the taxes previously lowered) and higher interest rates to encourage greater savings in the USA.
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Andrew Sheldon
www.sheldonthinks.com
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