Agricultural Stocks – Growth Market
The last few months in the market have been quite nerve racking.
Stock prices are bouncing up and down like a basketball in a high school gym class. Dow 14,000. . . Dow 13,000. . . Dow 14,000. The 200 and 300 point swings we see every day make picking the right stock all the more important.
As we discussed earlier this week, banking stocks have been destroyed and are setting themselves up for more of the same. Energy stocks continue to rally as oil prices constantly push to new highs and the salivating press drools more each day as we near $100 per barrel.
Technology stocks, which have shown considerable strength in the last few weeks, have recently suffered a slide of their own. This leaves many
investors on the sidelines asking the question:
“Where is today’s growth market?”
I think I have the answer to that, but first, a little background.
Commodity prices across the board are rallying. Gold is over $800 and is on its way to who knows where. Silver meanwhile has crossed $15 per ounce. All of the news seems to be about oil approaching the $100 a barrel level and natural gas futures reaching new highs. What is lost in the information overload is that the more common commodities are also
reaching new highs.
Corn is a mere 12% from its highs reached earlier this year.
Wheat prices are double the previous highs achieved in the last decade.
Soybeans, oats, barley. . . the list goes on of agricultural commodities that are reaching new 52-week or lifetime highs.
Increasing demand for commodities is driving many agricultural stocks
to new highs. Look at Deere & Co. (DE), a leading supplier of farm and
forestry equipment throughout the world. The stock has been hitting
new highs for the last few years as their business performance has been
nothing short of spectacular.
So, what is driving their business? Let’s let Deere CEO Bob Lane explain:
“Farm commodity production, as an example, has been expanding across
the world in recent years yet has consistently fallen short of demand.
Global carryover stocks of corn and wheat are at 30-year lows in relation
to use. Consumption is being driven by a global population growing in
both size and affluence, and by the increasing popularity of renewable
fuels.”
Put simply, demand for commodities is growing faster than the supply of
those commodities. This is causing prices to rise. When prices rise,
the commodity producers – farmers – rush out to plant more crops and
create more supply. To do this, they need more equipment, seed, and
fertilizer. They need the products that agricultural-related companies
are selling.
This demand can’t be satiated overnight. It can take several years
for a previously unfarmed piece of land to produce high yields of a
quality crop. As amazing as it sounds, the agricultural industry is in a
period of dynamic growth. Growth which is expected to continue for a
few more years at a minimum.
There are a number of companies in the agricultural industry that I like. Deere is only one example of a company benefiting from this growing market. The other major player worth mentioning is Monsanto (MON) which provides seeds and herbicides to farmers in an effort to expand
their crop yields.
With the market volatility increasing, I am focusing on fundamental
stories and long term growth prospects. For me, the agricultural industry and the companies supplying to it have a lot of growth ahead. It clearly deserves a very close look.
Category: Commodities
