Shares of agricultural companies have been in the spotlight in recent years, all thanks to supply chain issues, rising energy costs, and rising global demand for food. Economists believe that food prices will continue to rise through 2022, accelerating inflation even further. For example, in January 2022, U.S. food inflation reached 7.9 percent, the highest level since 1982.
According to a report from the U.S. Department of Agriculture, net farm income in 2021 grew by $23.9 billion, an increase of 25 percent over 2020. Growth should continue in 2022, even despite high inflation, as many agricultural companies shift costs to customers.
Russia’s war with Ukraine will also boost the shares of agricultural companies. Nearly 25% of all nitrogen fertilizers imported to the EU are from Russia, and due to sanctions, this will not be possible in the coming months. Moreover, the two opposing sides are major exporters of grain and oilseeds.
The first company we recommend is Bunge (BG). Although it is not directly a company that grows crops, it is nevertheless closely connected to farmers who process grain.
What exactly does Bunge do? The issuer processes oilseeds and grains, which are used to produce high-protein livestock feed. The company also works with edible oils for commercial customers. Bunge also has a stake in the sugar business. The company buys, stores, transports, processes, and sells products. The company operates in the following countries: India, Brazil, North America, and the European continent.
In 2022 Bunge decided to try a new field and began a collaboration with Chevron to produce renewable fuels from plant components (soybeans). Bunge’s soybean processing facilities and Chevron’s expertise in fuel production will be used for this purpose. In addition, Chevron is investing $600 million to expand production.
Bunge’s business is quite profitable, and in recent quarters the company has been pleasing investors with good reports. In Q4 2021, the company reported an adjusted net income of $533 million, or $3.49 per share. For the same period in 2020, the company had adjusted net income of $455 million, or $3.05 per share. The issuer’s revenues came in at $16.683 billion. A year earlier, revenues did not exceed $12.61 billion.
The company has a good dividend history, and Bunge has been making regular payments for the past 18 years. Last quarter, they were $0.525 per share.
In our opinion, this paper looks attractive for buying. Its last growth wave started in December 2021, and now we are seeing a pause in the rally. We believe that the pause in growth will not last long, and soon Bunge shares will continue their growth.
Deere & Company
Deere & Company is engaged in agricultural, construction, and logging equipment. The company operates in several areas: agriculture, forestry, and construction. The issuer also provides financial services. The company has 23 plants located in North America. There are production facilities in Argentina, Brazil, China, Europe, India, Israel, and Mexico.
The company started its business in the agricultural sector, then joined the construction sector, and now this segment accounts for about 29% of sales. Deere & Company did not stop there and acquired Wirtgen, which produces road-building equipment, and became a major player in the road-building business.
In February 2022, the company reported Q1, which ended with earnings per share of $2.92, down 24.5% from the same period in 2021. These numbers were well above the $2.26 per share forecast. Global sales rose 18.8% year over year to $9.57 billion, compared with a forecast of $8.28 billion.
Revenue rose 5% year-over-year to $9.6 billion, but Deere & Company suffered higher input costs amid high inflation and supply chain problems. As a result, net income fell 26% to $903 million.
Deere expects sales of large farm equipment in North America to grow 15% in 2022, helped by 5-10% growth in construction equipment sales. By the end of the year, the company predicts a net profit of $6.7 to $7.1 billion, which is quite modest given the strong demand for agricultural and construction equipment, rising infrastructure costs, and favorable prices for agricultural products.
Supply chain issues, rising material prices, and rising employee wages remain constraints on growth for Deere.
Currently, the paper is traded at a forward profit of 15.4 and 2.5 times behind the sales. Buyers now are trying to seize the level of $400, but unsuccessfully.
Mosaic (MOS) is a producer and seller of concentrated phosphate and potash fertilizers. The company does business in the following areas: phosphates, potash fertilizers, and mosaic fertilizers. The issuer’s products can be found in 40 countries.
Now Mosaic securities are traded near the five-year highs. It is noteworthy that the issuer’s shares in the last year have already grown by almost 90%. Over the past 12 months, the driver of this paper has been pandemic-related problems, labor shortages, and supply chain disruptions. These problems have raised the demand for all agricultural products in the world on the one hand and reduced consumption on the other. Russia’s war with Ukraine exacerbated this situation, threatening world food markets.
These countries account for 14% of world wheat production. The fertilizer market is also predicted to change in the coming years due to sanctions against fertilizer companies from Belarus and Russia, which account for 35% of global potash capacity. In this regard, Western companies that produce similar fertilizers should fill the gap between supply and demand and gradually increase their capacity. It is a good chance for Mosaic to increase its market share in all directions.
The issuer ended 2021 with good results. Total EBITDA was $3.6 billion, the highest since the IPO. Adjusted earnings per share were $5.4, the highest since 2011.
According to Wall Street forecasts, the company’s shares have a growth potential of 37%. In this case, the target for the buyers will be the level of $80.
Nutrien (NTR) is another company from the agriculture sector that has good long-term potential. Nutrien has always been one of the best Canadian stocks to buy because of its dominance in the agricultural industry. The issuer is engaged in the production of crop nutrients. The company distributes its products in the United States, Canada, South Africa, Australia, and South America.
The issuer reported revenue of $10.6 billion in EBITDA and earnings per share of $11 in its Q4 report. Net income was $1.2 billion, or $2.11 per share. By comparison, Nutrien had a net income of $316 million, or $0.55 per share, for the same period in 2020.
In terms of sales, the issuer came in at $7.27 billion, up 79% from $4.05 billion in Q4 2020.
The company expects adjusted annual earnings of around $10.20 to $11.80 per share. Nutrien increased its dividend payout to $0.48 per share, up 4% from a year earlier.
The company is projected to continue growing in 2022. High inflation has already driven up fertilizer prices, which are at record levels. Sanctions against Belarus and Russia also contributed to the price increase. These events pushed Nutrien to ramp up production to meet increased demand.