There is an increase in corn, wheat, and other agriculture commodities, although some agriculture stocks are not keeping up with the costs. This increase in prices has created a buying opportunity in the share of companies like Corteva and FMC.
It is estimated that corn, soybean, and wheat prices have gone up 57%, 22%, and 20%, respectively, in 2021. This rise in prices is news of relief for farmers as they will earn more from their crops and spend more to maximize the agriculture output. Fall in Crops Inputs The recent trading would not show the rise in the prices of crops. Corteva, a ticker from CTVA, and FMC have reported earnings of last week of crop inputs like pesticides, herbicides, seeds, etc. It shows the drop in the shares of Corteva around 4.2% the day it has been reported, whereas the shares of FMC dropped 3.6%. Both companies, i.e., Corteva and FMC, show that their earning are fine as both companies beat and crop prices are up, but none of the companies materially boosted full-year earnings guidance. This thing somewhat disappoints.
There is advice for investors. They should not get bothered with this scenario. Usually, agriculture commodity prices are determined by supply and not demand, as is the case with most other commodities. The need for food is generally stable, but supply fluctuates widely with the weather.
Crop supply is according to food demand as mentioned above. But this time may be different. The collection is growing but not because of food demand. There is a new source of the market now. China is importing vast amounts of corn, around 32 million metric tons in 2020 and 2021, almost, surprisingly, as much as the country has imported during the previous 20 years.
China is a meat-eating population that needs feed for animals, and that feed is corn and soy. This news should give investors confidence that commodity prices can remain high for the next few years. If we assume that it is a case, then agriculture stocks do not seem expensive. DE and Corteva have traded for about 21 times estimated 2021 earnings, in line with the S&P 500. AGCO and FMC sell at 16 and 15 times estimated 2022 earnings, respectively. Fertilizer producers MOS and NTR trade at 19 and 15 times, respectively.
These multiples perhaps won’t be soaring any future, but the investor does not need them to as the main aim is to Expand earnings, and that is all that they wanted to bring their shares higher.