Crop prices are rallying. That’s good for earnings at farm-related companies. But prices aren’t rallying just because of the weather. Ag investors are always watching the skies. Some of the changes are structural, which could give farming companies a boost beyond 2021.
(ticker: NTR) reported fourth-quarter results Wednesday evening. The company earned 24 cents in adjusted earnings per share. Wall Street expected 17 cents in per-share earnings.
More important, though, is the 2021 industry and financial guidance. Shipments of potash—a key fertilizer—are expected to hit a record in 2021. What’s more, Nutrien expects to earn about $2.40 a share, about a dime better than Wall Street was projecting about a week ago.
Rising crop prices have a lot to do with the better-than-expected outlook. Corn and soybean prices for delivery in September—the coming crop—are up more than 30% over the past six months.
Crop prices, of course, are key for Nutrien and the sector. They determine farm income, and farmers buy products from Nutrien. When prices are high, farmers want to grow more. That means more fertilizer. When prices are high, farmers can also pay more for fertilizer and seed.
But more crops grown can mean more supply and lower prices in the future. That commodity cycle dynamic, however, might not happen as fast as in prior agricultural cycles. “There is tightening supply/demand…maybe some weather impacts…but the big driver is China is buying a lot more soybeans and corn,” Nutrien CEO
tells Barron’s. He adds China is rebuilding its hog herd after African swine fever. It is also facing higher food inflation.
African swine fever is a hog disease that affected hog herds around the world and especially in Asia.
“The question we are asking ourselves…is that structural?” he asks. For Magro, a structural shift could mean more corn and soy imports into China and, in turn, better pricing for U.S. farmers for longer.
That would be bullish for Nutrien stock, as well as other crop input providers such as
). Equipment providers
) would benefit as well.
Those stocks are up about 45%, on average, over the past six months. Investors have started to take notice. But most of the gains can be explained by rising crop prices.
Of the six stocks, Wall Street appears to like FMC, Deere, and Nutrien best. Respectively, 85%, 73%, and 68% of analysts covering those stocks rate shares Buy. The average Buy-rating ratio for stocks in the
Dow Jones Industrial Average
is about 57%. The other three stocks have below-average Buy-rating ratios. Still, none of the six is below 50%. Wall Street likes the sector.
Structurally higher demand in China could be the thing that boosts the stocks from here. That’s something to watch. So is the weather. “There is this extraneous uncontrollable variable called weather,” adds Magro. That will never change for the sector.
Nutrien stock is down 0.3% in recent trading, at $55.68, after opening higher. The
is down 0.4%.
Write to Al Root at [email protected]
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