James B. Stewart reiterated his enthusiasm for agricultural stocks in the Wall Street Journal yesterday. While corn, oats, barley and wheat are not finite resources, he noted, U.S. stockpiles are currently at record lows and demand for high quality foodstuffs is growing worldwide.
I've been urging a commitment to the agriculture sector for some time, and have recommended Monsanto (NYSE:MON), Syngenta (NYSE:SYT), and Deere (NYSE:DE) (all of which I own). If you haven't sowed any of these seeds, so to speak, I don't think it's too late. Despite stellar earnings last week, Deere shares dropped on the news because its second-quarter forecast was slightly lower than expected. Buying opportunities crop up periodically, which I've been taking advantage of... In its earnings release, Deere noted that "farm conditions throughout the world remain quite positive." High grain prices, low stockpiles, and government encouragement of biofuel development have spurred investment in the tractors, combines and other heavy equipment that Deere makes.
Stewart also recommended Bunge (NYSE:BG), one of the world's biggest soybean processors.
Neither Deere nor Bunge is entirely immune from the risk of recession, and both are well off their 52-week highs. Both peaked in mid-January. Deere is trading at about $83 after reaching $94. Bunge is selling for around $112 a share, down from $135. But even in tougher economic times, food is one of the last things where people cut back.
Stewart's sentiments were echoed by CEO of Potash Corp of Saskatchewan (POT), William Doyle, in a Bloomberg interview yesterday. People and livestock are consuming more grain than ever, draining world inventories and increasing the likelihood of shortages, Doyle said.
As Bloomberg reported, global grain stockpiles fell to about 53 days of supply last year, the lowest level since record-keeping began in 1960, according to the U.S. Department of Agriculture. The effect was clear on the likes of Potash, the world's largest maker of crop nutrients, Mosaic (NYSE:MOS), the world's largest producer of phosphate fertilizer, and Agrium (AGU), the largest retailer of crop nutrients in the U.S.
Potash... has more than doubled in market value in the past year as record crop prices allowed farmers to spend more on fertilizer to boost yields. The company has more than doubled net income in the past two years to $1.1 billion and expects gross profit from potash to expand to $8 billion within five years from $912 million in 2007... Potash, based in Saskatoon, Saskatchewan, rose C$7.90, or 5.3 percent, to a record C$157.25 [Tuesday] in Toronto Stock Exchange trading.
Mosaic Co., the world's largest producer of phosphate fertilizer, rose $6.18, or 6 percent, to $109.55 in New York. Agrium Inc., the largest retailer of crop nutrients in the U.S., rose C$3.22, or 4.9 percent, to C$69 in Toronto.