Farming For Income

Includes: ADM, BG, DD, DE, INGR, MON, POT
by: Invest Yourself

Introduction: We all have to eat. At least, we have to if we want to go on living. It is my belief, that with the current growth rate of the world's population and the increase in worldwide wealth, agriculture is going to be a very important investment sector moving forward. Below are several companies that are positioned to profit from any uptick in demand of products from this sector. When investing in companies like these that profit from commodity based industries, it is important that the companies you select return a certain level of reliable income to your wallet. For that reason, all of the companies selected below are dividend paying agriculture companies. I will highlight various companies that stand to profit from increased demand in the future, and how you can profit from every part of the agricultural process.

Agriculture: There is a limited amount of arable land on earth, and as the world's population continues to grow, the agriculture industry must focus on doing more with less. Below are some companies that enable farmers and processors to achieve that goal.

First, lets highlight the equipment to plant, harvest, etc...

When demand increases, it is important that farmers' time be optimized. Nothing has contributed more to this optimization than general use and specialty tractors. These tractors allow farmers to fully utilize their time, whether it is planting, fertilizing or harvesting. There is only one company that has proven time and again to provide a quality product while at the same time optimizing shareholder return.

  • Deere & Company (NYSE:DE)
2009 2010 2011 2012
Revenue $23.11B $25.99B $32.01B $33.98B
Net Income $873.5M $1.87B $2.8B $3.06B
EPS $2.06 $4.35 $6.63 $7.63

Dividend (Annual)

$1.12 $1.16 $1.52 $1.79
Shares 424.4M 428.6M 422.4M 401.5M

As you can see, DE has continued to increase profitability in the face of difficult economic times. DE has also demonstrated an ability to increase company revenues. If demand in the agriculture sector does increase over the coming years, DE is positioned to make a substantial profit. With a dividend yield of 2.35% and a current P/E of 10.75, DE is a buy even at current prices.

Next the seeds and a little fertilizer to help them grow...

Without seeds, there would be no crops to harvest. Monsanto and DuPont provide genetically engineered seeds under various brands that produce above standard crop yields. These seeds have been engineered to be drought and pest resistant, which in the last couple years has come to be very important. These seeds will continue to be important in upcoming years as the potential for droughts and pest invasions is always an unknown. With constant planting and harvesting, it is important that farmers restore nutrients to the soil that grows their crops. Potash is the industry leader when it comes to industrial grade fertilizers.

  • Monsanto (NYSE:MON)
2009 2010 2011 2012
Revenue $11.69B $10.05B $11.83B $13.5B
Net Income $2.1B $1.11B $1.61B $2.04B
EPS $3.86 $2.04 $3.00 $3.84

Dividend (Annual)

$1.04 $1.08 $1.14 $1.28
Shares 555.2M 550.8M 542.4M 540.2M

Monsanto has seen increased demand for its seed products in light of the recent droughts that have affected the American heartland. MON's dividend yield of 1.45% is a little low and its P/E of 24 indicates that it may be overbought at current levels. Look to buy MON on market pullbacks.

  • E.I. DuPont de Nemours & Co (NYSE:DD)
2009 2010 2011 2012
Revenue $26.11B $31.51B $37.96B $34.79B
Net Income $1.76B $3.03B $3.47B $2.47B
EPS $1.93 $3.32 $3.73 $2.98

Dividend (Annual)

$1.64 $1.64 $1.64 $1.70
Shares 904.4M 908.86M 928.42M 933.28M

DD's Agriculture division is its fastest growing division within the company, contributing an additional 311 million dollars in revenue in 2012 than in 2011. DD's current dividend yield of 3.5% and current P/E of 16.4 indicates that DD is fairly valued at current levels and should be added to if any pullbacks should occur.

  • Potash Corp. of Saskatchewan, Inc (NYSE:POT)
2009 2010 2011 2012
Revenue $4.54B $6.74B $8.62B $7.92B
Net Income $1.13B $1.83B $3.05B $2.08B
EPS $1.27 $2.06 $3.56 $2.42

Dividend (Annual)

$0.13 $0.13 $0.24 $0.56
Shares 911.83M 911.09M 876.64M 875.91M

POT has seen solid demand for its fertilizers in North America and Latin America increasing to 1 million tons in 2012 from 800,000 tons in 2011, but has seen a decline in demand from China and India resulting in a decrease of demand from 1.4 million tons in 2011 to 1.1 million tons in 2012. Even though a net decrease in demand has occurred, you can be certain that any increase in demand for agriculture products will result in increased demand for fertilizer. POT with a dividend yield of 2.8% and a P/E of 16.2 appears to be fairly well valued; look to add or to open positions with market pullbacks.

Finally the companies to process the harvested products...

Planting and harvesting the products are important parts of this supply chain, but without companies to process these agriculture stocks and sell them to demanding companies, this would be an "unfruitful" process. Bunge, Archer Daniels Midland and Ingredion are industry leaders when it comes to agricultural product refinement and processing.

  • Archer Daniels Midland (NYSE:ADM)
2009 2010 2011 2012
Revenue $69.21B $61.68B $80.68B $88.92B
Net Income $1.71B $1.93B $2.04B $1.22B
EPS $2.66 $3.00 $3.17 $1.84

Dividend (Annual)

$0.56 $0.60 $0.66 $0.70
Shares 644M 644M 654M 666M

ADM is the industry leader when it comes to agricultural commodity processing and refinement. ADM has seen solid revenue growth over the last 4 years, but has seen its margins squeezed due to lack of pricing power brought on by the recession. It has also seen a squeeze in its ethanol margins due to the rising price of corn brought on by the mid-American drought. Although its margins have been squeezed it has found solid ways to centralize and optimize profit evidenced by selling a 23% stake it had in Gruma for 510 million dollars. ADM seeks to use this money to further optimize its core business model. The current dividend yield of 2.3% couple with a P/E of 15.7 makes buying this stock appealing on market pullbacks and should be considered a hold investment currently.

  • Bunge Ltd (NYSE:BG)
2009 2010 2011 2012
Revenue $41.93B $45.71B $58.74B $60.99B
Net Income $361M $2.35B $942M $406M
EPS $2.24 $16.20 $6.19 $0.19

Dividend (Annual)

$0.80 $0.88 $0.96 $1.04
Shares 127.67M 156.27M 155.21M 147.14

BG is not only an agricultural commodity processor. It also have a segment of the company that produces and sells fertilizers. Although it looks like BG had a less profitable year in 2011 than in 2012, its profit was impacted by one time charge offs amounting to $683 million dollars. If you add those charges on an adjusted basis back into the profit for 2012, you find that 2012 profits amount to more than 1 billion dollars. Considering these adjustments, BG looks much more attractive than a first glance may afford it. While its 1.5% dividend yield may seem small remember that they have increased the dividend by an average of 7.5% every year for the last 4 years.

  • Ingredion Incorporated (NYSE:INGR)
2009 2010 2011 2012
Revenue $3.67B $4.37B $6.22B $6.53
Net Income $41M $169M $416M $428M
EPS $0.55 $2.24 $5.44 $5.59

Dividend (Annual)

$0.56 $0.56 $0.60 $0.86
Shares 75.5M 76.8M 76.4 76.5

INGR specializes in refinement of corn and corn based products. INGR has done an excellent job of profiting during a period in which crop yields have been substandard. INGR is positioned to profit from increased crop yields of corn that would drive down their input costs and increase their margins. The dividend yield of 2.1% coupled with a P/E of 13 makes this stock a buy at current levels.


I believe the agricultural sector has accumulated a bad reputation over the years. Many people view it as an unprofitable sector with low margins. I believe this is a misconception formulated from many years of people associating agriculture with farmers who often struggle to make a living. Large corporations have figured out how to profit from this often volatile market segment. Above, I have profiled several companies to choose from if you view the agricultural sector the same way that I do.

Disclosure: I am long ADM, DD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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