During the second half of 2011, Kapitall writers published articles detailing the rising value of arable farmland and the possible opportunities of investing in farmland. These articles took an upbeat view on the prospects of the agricultural industry, a classic American industry that sustains local economies throughout the United States, feeds the country (and exports to feed foreign populaces as well), and provides biofuels typically in the form of corn-based ethanol fuel additives (including the popular E85).
This upbeat view may have to be revised in light of what the USDA considers the worst drought since 1988. Data from the National Drought Mitigation Center show that 53.17 percent of the country was in moderate drought or worse, up more than two percentage points over the previous week. Of the 48 contiguous states (excluding Hawaii and Alaska), 60.84 percent of the country’s land area was in moderate drought or worse as of July 10, up from 55.96 percent the previous week. The worsening conditions have led the USDA to declare over 1,000 counties in 26 states as natural disaster areas, report Joshua Zumbrun and Mark Drajem of Bloomberg.
American farmers have no choice but to accept the fact that this drought could severely knock profits for this year’s crops. This could have far-reaching repercussions throughout the broader economy. “It might be a $50 billion event for the economy as it blends into everything over the next four quarters,” Wells Fargo agricultural economist Michael Swanson told Zumbrun and Drajem of Bloomberg.
Widespread drought will necessarily lead to failed crops. A shortage in crops serves as a negative supply-side shock to food prices, thus putting upward pressure on food and commodity prices. Zumbrun and Drajem of Bloomberg report that corn prices are now at their highest in 10 months and soybean prices are at their highest since 2008, a reflection of the drought’s severity.
The crop shortage and the necessary decrease in farming activity could also hurt the industry of companies that support the farmers with machinery, fertilizer, seeds, and other farming necessities.
Business Section: Investing Ideas
Though there might not be any clouds in the sky, there may be a silver lining to this story. It is possible that this year’s shortfall will lead to an increase in investment next year, according to Karen Ubelhart of Bloomberg Industries. Moreover, economist Bruce Babcock told Bloomberg reporters that it is possible that a single season drought could have little long-term effect on the broad economy.
Listed below are American farm products and farm machinery companies that could be affected by this drought. Has this industry’s recent good fortunes dried up? Or is this merely a hiccup in what could otherwise be a lucrative long-term investment?
Use the Compar-O-Matic to compare changes in monthly return for the names listed below:
(List sorted by market cap)
1. Deere & Company (DE, Earnings, Analysts, Financials): Provides products and services primarily for agriculture and forestry worldwide. Market cap at $30.09B, most recent closing price at $75.66. Share prices are down 1.14% on the month.
2. Archer Daniels Midland Company (ADM, Earnings, Analysts, Financials): Procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. Market cap at $18.18B, most recent closing price at $27.60. Share prices are down 9.49% on the month.
3. Bunge Limited (BG, Earnings, Analysts, Financials): Engages in the agriculture and food businesses worldwide. Market cap at $9.27B, most recent closing price at $63.55. Share prices are up 7.49% on the month.
4. AGCO Corporation (AGCO, Earnings, Analysts, Financials): Distributes agricultural equipment and related replacement parts worldwide. Market cap at $4.19B, most recent closing price at $43.08. Share prices are down 1.87% on the month.
5. Terex Corp. (TEX, Earnings, Analysts, Financials): Manufactures and markets machinery products, equipment, and related replacement parts and components for construction, quarrying, mining, shipping, transportation, refining, energy, and utility industries. Market cap at $1.77B, most recent closing price at $16.02. Share prices are down 20.38% on the month.
6. Manitowoc Co. Inc. (MTW, Earnings, Analysts, Financials): Engages in the manufacture and sale of cranes and related products, and foodservice equipment. Market cap at $1.47B, most recent closing price at $11.12. Share prices are down 1.43% on the month.
7. Lindsay Corporation (LNN, Earnings, Analysts, Financials): Designs, manufactures, and sells automated agricultural irrigation systems that are primarily used in the agricultural industry to increase or stabilize crop production while conserving water, energy, and labor in the United States and internationally. Market cap at $905.16M, most recent closing price at $71.16. Share prices are up 22.59% on the month.
8. Nacco Industries Inc. (NC, Earnings, Analysts, Financials): Engages in lift trucks, small appliances, specialty retail, and mining businesses primarily in the Americas, Europe, and the Asia-Pacific. Market cap at $933.81M, most recent closing price at $111.30. Share prices are down 3.19% on the month.
9. The Andersons, Inc. (ANDE, Earnings, Analysts, Financials): Engages in the agriculture and transportation businesses in the United States. Market cap at $706.8M, most recent closing price at $38.0. Share prices are down 12.01% on the month.
(By Andrew Dominguez. Data sourced from Finviz)
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Analyze These Ideas: Getting Started
- Read descriptions for all companies mentioned
- Access a performance overview for all stocks in the list
- Compare analyst ratings for the companies mentioned
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- Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, Filings
- Deere & Company (DE, Chart, Download SEC Filings)
- Archer Daniels Midland Company (ADM, Chart, Download SEC Filings)
- Bunge Limited (BG, Chart, Download SEC Filings)
- AGCO Corporation (AGCO, Chart, Download SEC Filings)
- Terex Corp. (TEX, Chart, Download SEC Filings)
- Manitowoc Co. Inc. (MTW, Chart, Download SEC Filings)
- Lindsay Corporation (LNN, Chart, Download SEC Filings)
- Nacco Industries Inc. (NC, Chart, Download SEC Filings)
- The Andersons, Inc. (ANDE, Chart, Download SEC Filings)
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