The Federal Agricultural Mortgage Corporation, better known as Farmer Mac, is a less-known cousin of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). It is a publicly owned company originally created by the US government to provide a liquid market for loans to farms and other rural businesses.
Farmland has been relatively attractive as an investment in recent years. Not surprisingly, Farmer Mac has escaped the problems suffered by the other “government sponsored enterprises”. Shares of AGM have recovered all the territory lost during the financial crisis and now are near the top end of its range from the pre-crisis years.
But what has our interest today is the beautiful consolidation on the daily chart, as seen above. Prices peaked in November after a 3 week move nearly stright up. The shares then formed a nice rounded pattern and are now once again approaching November’s highs. This could turn into the classic “cup and handle” pattern. In that case, we will see prices drift sideways to down for a week or so, and on low volume, to make the cup handle before shooting higher. Or AGM could forget about the handle and just keep trading higher.
Of course, unlike the loans backed by Farmer Mac, there are no guarantees here. Prices usually go higher in these situations, but not always. However, in this case we are optimistic and the reason is the changing volume as the cup was created. Trading volume during the downward, left side of the cup was low compared to the right side. It looks like a healthy pause in a longer bull market.