Agricultural Stocks Positioned to Send Food Prices Soaring
“I went back to work because someone had to pay for the groceries.” -Bette Davis-
Food commodity prices are surging as the market recovers from the COVID-19 pandemic. As per the FAO (Food and Agriculture Organization of the United Nations), sugar and cereal prices continue to rise steadily, and FAO Food Price Index averaged 120.9 points in April.
It was 30.8% higher than the level observed for the same month in 2020. To the uninitiated, the index tracks monthly changes in international prices of food commodities. As reported by Barrons agricultural stocks are expected to increase in value, as well. The rise could send food prices skyrocketing.
Here’s everything you need to know about which agricultural stocks are expected to see an increase in value and how the farming industry is rallying. We will also discuss what people can do to survive amid rising food prices.
Which agricultural stocks are positioned to increase in value?
As per Barrons, crop prices are consistently increasing, and contrary to expectations, the increase in prices isn’t merely because of climate and weather conditions. It’s primarily due to the better-than-expected outlook for the farming industry. For instance, corn and soybean prices are up by more than 30%. Moreover, they have risen steadily over the past six months.
The biggest driver here is China buying corn and soybeans a lot more than it did previously. As per Nutrien CEO Chuck Magro, China’s hog herd suffered heavily during African swine fever. The country is now rebuilding, thereby purchasing corn and soybeans in bulk amounts. If this leads to a long-term structural change and China keeps buying more corn and soybeans, US farmers could continue to enjoy better prices.
The rise in demand is primarily beneficial for crop input providers. When prices increase, farmers tend to produce more. As a result, they buy more raw materials such as fertilizer. As a result, the increase in demand allows crop input providers to earn more, and their shares perform better on the stock market. So far, the following companies are likely to benefit from the increased food prices:
Nutrien recently reported results for the fourth quarter. Its net earnings stood at $316 million, with earnings per share at $0.24, beating Wall Street’s expectations of $0.17 per share. The company attributed its gains to higher nitrogen and potash sales and reduced production costs.
According to estimates, the company’s potash shipments are expected to hit a record high in 2021. In addition, potash is an essential fertilizer for crops. As a result, Nutrien expects the increased loads to boost its revenue further. As current predictions stand, the company hopes to earn approximately $2.40 per share.
Mosaic is another crop input provider that mines potash and phosphate. Its stock prices have increased from $10.82 to $35.25 since June 2020. Like Nutrien, the company has benefited from rising fertilizer demand. As a result, earnings per share in 2020 came out to be $1.75, and the forecast for 2021 suggests the company expects to earn $2.01 to $2.98 per share.
Corteva, an agricultural chemical and seed company, is also likely to increase stock prices. So far, the company’s stock prices have increased from $23.25 to $45.18 since June 2020. The company’s earnings forecast for 2021 estimates its earnings per share between $1.92 and $1.86.
Like Corteva, FMC is also a chemical manufacturing company. As a result, the company has seen a significant rise in stock prices in the last year. In June 2020, the company’s shares were selling at an average of $89.14. today the company’s share prices are at $114.95. Analysts have also stipulated its earnings per share for 2021 to be between $7.05 and $7.14.
Deere is an equipment maker that manufactures agricultural, forestry, and construction machinery. The company has witnessed outstanding growth in the last year, with its share prices rising from $130.05 to $373.63 since June 2020. In addition, the company’s earnings forecast has a positive outlook for 2021, as well. As a result, its earnings per share are estimated to be between $15.35 and $16.01.
AGCO is another equipment maker that manufactures agricultural machinery. Like Deere, the company has performed well in the last year. As a result, its share prices increased from $47.65 to $143.34 since June 2020. As per a yearly earnings forecast, the company’s earnings per share for 2021 are between $8.55 and $8.67.
On the whole, these stocks have increased by 45% over the past six months. As per Barrons, Wall Street currently favors Nutrien, Deere, and FMC as the best agricultural stocks to buy. However, it is essential to point out that as more farmers procure fertilizer, chemicals, and other equipment from these companies, their prices are likely to increase. The increase in prices can drive up the cost of food production, translating into higher food prices.
How much of an increase in food prices can we expect?
As per the US Department of Agriculture, food-at-home prices will increase by 1% to 2% in 2021. In addition, the prices for restaurant food (food-away-from-home) will also rise by $2% to 3%.
A more detailed breakdown reveals that vegetable, fresh fruit, poultry, and dairy prices can rise by 1%. We can also expect a 1.5% to 2.5% increase in cereal and bakery prices. Conversely, veal and beef prices may drop 1.5% to 2.5%. Egg and pork prices could either rise or decline by 0.5%. Finally, we can expect fish and seafood prices to increase by 1.5% to 2.5%.
It remains to be seen whether the expected inflation in food prices can beat these estimates.
Coping with rising food prices
Usually, periods of inflation lead to reduced demand, which can eventually cause price levels to go back to normal. However, most food commodities are necessary, so this might take a while. If you are worried about rising food prices, then here are some things you can do to control your expenses:
1. Eat at home
As you may have observed, food-at-home prices are lower than restaurant food prices. Eating more at home can help you make the most of this. If you cook at home, you’ll see that most meals cost a fraction of what you pay when you dine out. It’s also better for your long-term health.
2. Avoid impulse shopping
If you want to combat rising food prices, you must avoid impulse purchases as much as possible. You can prepare a shopping list when you go to buy groceries and stick to it religiously. Your efforts will pay off when you find yourself spending a lot less on food items.
I also recommend eating something before you shop. When you are hungry, you’ll want to buy anything and everything that catches your eye. A full stomach takes care of this problem.
3. Avoid buying ready-made meals
If you have a tight schedule, you’ll be inclined to buy ready-made meals. However, there’s usually a premium attached to these meals that make them more expensive. You can consider buying ingredients and preparing your meals to avoid this.
4. Buy locally produced goods
If you are worried about increasing food prices, I recommend buying locally-produced items over imported goods. These are considerably cheaper since they don’t carry the high transportation costs associated with imported items.
5. Avoid buying bottled water
Do you tend to buy bottled water? You’ll be surprised by how much money you can save if you stop doing just that. When you buy bottled water, you aren’t doing any favors to the environment, as well. If you don’t enjoy the taste of tap water, you can invest in a water filter instead and save money (and the environment) in the long term.
Wrapping it up
Food prices continue to be at an all-time high even as we slowly recover from the COVID-19 pandemic. The rise in price levels also encourages US farmers to produce more, thereby driving up agricultural stock prices.
There’s a possibility that the current inflation will taper off as more people get vaccinated and the economy recovers. But, until then, you can try and cut back on your food expenses by making more meals at home, avoiding prepared foods, and buying local goods instead of imported ones.
“The average food item on a U.S. grocery shelf has traveled farther than most families go on their annual vacations.” -Barbara Kingsolver-