A recent Wall Street Journal article highlighted the fact that incomes for U.S. farmers, which have been subdued for years, are quickly rising. Take note, investors who are interested in agricultural stocks. Rising prices for agricultural commodities — including soybeans, corn, and other grains — is putting more dollars into the pockets of farmers across the U.S. heartland.
Those farmers, in turn, are investing those surplus dollars into a few primary farm assets: Dirt and iron. In other words, farmers are buying up cropland and machinery in order to expand and improve their respective businesses. The surge in demand for agricultural commodities is, of course, rippling across the sector.
The value of U.S. cropland hit record highs this year according to federal data. And prices for new and used farm equipment are soaring as well.
The sharp rise in demand was partially driven by strong demand from China for soybeans and corn. And U.S. agricultural exports are expected to reach their highest levels ever in fiscal years 2021 and 2022.
In fact, the United States Department of Agriculture (USDA) is projecting that net farm income will hit $113 billion in 2021, the highest levels since 2013.
Increased spending for dirt and iron will serve to increase the prospects of agricultural stocks focused on real estate and farm equipment in particular. Let’s look at those which stand to improve most.
- FMC Corp. (NYSE:FMC)
- AGCO Corp. (NYSE:AGCO)
- Gladstone Lands (NASDAQ:LAND)
- Deere & Co. (NYSE:DE)
- Terex Corp. (NYSE:TEX)
- Nutrien (NYSE:NTR)
- Bunge Ltd. (NYSE:BG)
Agricultural Stocks: FMC Corp. (FMC)
As farmers purchase more and more land for their crops, they’ll also want the best crop yield products and services. That’s the overarching reason investors should consider investing in FMC. The company provides crop protection, plant health, precision agriculture and pest solutions that farmers require to maximize their yields.
Before diving deeper into what it is that FMC does, let’s consider potential returns. Fortunately they are quite attractive. That’s because the nearly 20 analysts with current coverage of FMC give it a target stock price of $120.78, 37% higher than its current $88 price.
Factor in the current 48-cent quarterly dividend, which hasn’t been reduced since 2006, and you have roughly $2 more of return.
FMC released earnings in early August. The $1.2 billion in revenues the company recorded during Q2 represented an 8% increase year-over-year. And the company anticipates full-year revenues in the range of $4.9 billion to $5.1 billion.
FMC is in neither the agricultural real estate nor equipment sectors, but again should see increasing demand theoretically. With its dependable dividend and forecasted growth, it’s a safe bet on a resurgence of farm revenues.
AGCO Corp. (AGCO)
This article on agricultural stocks to buy started by alluding to increased spending by farmers on dirt and iron. AGCO is one of those companies in the iron game. That is, they manufacture equipment like tractors, combines and seeding and tillage equipment, among others.
The company has several equipment brands under its umbrella, including Fendt, Massey Ferguson, Challenger, and Valtra. In fact, AGCO is the world’s largest manufacturer of equipment focused on the agricultural industry.
Thus, if the surge in demand for farm equipment continues, AGCO stock should appreciate in kind.
The positive news there is that Wall Street expects exactly that to occur. The equity bears an overweight rating and an average target price of $165.33. That’s significantly higher than current prices near $121. And like FMC, AGCO also pays a dividend, though a more modest one which yields 0.6%
AGCO proved its strength when it posted Q2 results back in late July. It sold $2.9 billion worth of farming equipment, a 43.5% increase from the same period a year earlier. With the recent surge in demand, those sales figures could run even higher in the coming quarters.
Agricultural Stocks: Gladstone Lands (LAND)
The other area with surging demand is agricultural land. Gladstone Lands is seeking to capitalize in the most direct way: By buying up those lands.
The company has been doing exactly that throughout the year. In the second quarter, the firm acquired 13 farms, totaling 3,970 acres of land. The company paid $79.7 million for those acquisitions, which have a capitalization rate of 5.1%. Capitalization is the expected rate of return over the initial investment.
But the purchases also include other provisions, including rent escalations and CPI adjustments which will almost certainly raise that 5.1% cap rate.
Then, in August, Gladstone Lands undertook three separate deals purchasing farmland in the West and Southeast. It purchased $42.3 million of organic blueberry farmland in Oregon and California as demand is increasing. Organic blueberry sales increased 11% in 2020.
A week later the company announced it had purchased 617 acres of south Florida citrus groves for $5.2 million.
And a few days after that, it announced a $14.8 million purchase of 460 acres of almond production and water storage in Kern county, California.
Deere & Co. (DE)
I’d venture to guess that Deere & Co. is the most familiar name on this list of stocks. If you’re like me, you probably associate the company with lawnmowers. Perhaps too, like me, you’ve even mowed a lawn with one of their tractors.
Of course, Deere & Co. doesn’t focus solely on lawnmowers. The company manufactures equipment used in farming, construction, forestry and large-scale landscaping.
Mention a surge in farming equipment sales and Deere will be part of most conversations. Fortunately DE stock has capitalized on the positive forces underpinning the industry.
As a result it carries a lot of upside right now. It bears an average target price of around $415 but currently trades at $330. On top of that it also includes a dividend yielding 1.25%. The most bullish analysts believe DE stock could even hit $480.
There’s plenty of reason to be bullish. Deere posted very strong earnings in late August. The company reported $1.667 in net income on net sales of $11.527 billion. Those figures represented increases of 105.5% and 29% over the previous year, respectively. The company raised its full-year forecast for net income to as high as $5.9 billion, citing robust growth factors
Agricultural Stocks: Terex Corp. (TEX)
Of course, farmers use equipment other than tractors too. They also require processing machinery and things like aerial platforms for storing and moving their goods.
Terex is a company that manufactures processing machinery, moving platforms and cranes. It, too, is capitalizing on increased spending across the heartland and farmers across the U.S. When the company released its most recent earnings, it characterized its end-markets as “robust.”
The company reported Q2 revenues of $1 billion, up from $690.5 million a year prior. Its Q2 2020 loss of $3.2 million transformed into $72.3 million in net income in Q2 of 2021. Those results allowed the company to confidently raise its full year outlook. CEO John L. Garrison Jr. noted that “Given the strong first-half performance and significantly improved end markets, we have raised our full-year 2021 guidance, which takes into consideration current supply chain conditions. We increased our full-year sales outlook to approximately $3.9 billion with an EPS range of $2.85 to $3.05.”
That confidence has seen target prices rising as well as analysts pushing TEX stock into overweight territory.
Nutrien focuses on improving the soil that produces the agricultural commodities currently in high demand. The company produces nutrients — including potash, nitrogen and phosphate — which feed crops, fueling their growth. As farmers buy more land to produce more crops, they’ll require more and more of Nutrien’s products.
In fact, Nutrien produces over 25 million tons of those nutrients to sell to more than 500,000 customers. And the company is undergoing a period of strong growth. The company reported recorded net earnings hitting $1.1 billion in Q2.
And the company doesn’t see demand tapering. As CEO Mayo Schmidt noted: “The outlook for global crop and fertilizer markets continues to be very strong and we are positioned to benefit from our structural advantages and as a global leader in agriculture. We increased our full year 2021 adjusted EBITDA guidance1 by over $1.5 billion, supported in part by our quick actions to produce an additional one million tonnes of potash, illustrating the power of the Potash team’s unparalleled flexible, reliable, and low-cost six-mine network.”
The stock recently surged upward and has another $5 to go until it reaches target prices. It might not be hyperbolic to assume it could reach the $92 high-water mark analysts have assigned it. Either case leads to profits given its $71 price.
Agricultural Stocks: Bunge (BG)
Part of the boom in commodity prices was driven by strong demand from China and internationally. If that demand continues, then Bunge is certainly a stock to consider.
That’s because Bunge’s business is supplying and transporting agricultural commodities. Bunge saw a massive surge in net income through the first six months of 2021. It recorded $1.194 billion of net income in the period, up from $332 million in 2020. The more China demands soybeans and corn from the U.S., the more Bunge’s revenue grows.
BG stock’s target price sits at $95.10, nicely above its current price of $84.75. Factor in the 2.5% dividend yield and BG shares look quite attractive.
The two companies will cooperate to create renewable fuel from Bunge’s soybean processing facilities in Louisiana. Chevron is retaining rights to the oil to use as renewable feedstock to manufacture diesel and jet fuel.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.