4 Stocks to Watch as USDA Projects Improved Farm Income in 2021
The U.S Department of Agriculture expects a 19.5% growth in farm income this year, which in turn will benefit stocks like DE, TWI, AGCO and LNN.
Per the USDA’s (U.S Department of Agriculture) latest report, net farm income is expected to increase 19.5% to $113 billion in 2021 — the highest level since 2013. This will be fueled by higher commodity prices primarily on account of tightening global stocks and strong import demand from China through the year. Cash receipts from the sale of agricultural commodities are projected to rise 18% to $421.5 billion. Corn, soybean and wheat revenues, in particular, are expected to increase, largely due to higher commodity prices and more crops sold. Direct Government farm payments are forecast at $28 billion for the year. This will translate to higher equipment demand, which in turn will support the Zacks Manufacturing - Farm Equipment industry.
Image Source: Zacks Investment Research
The industry has gained 79.5% in a year, compared with the S&P 500’s rally of 38.2%, riding on higher commodity prices and favorable farm income. However, Hurricane Ida — the second-most damaging and intense hurricane to strike the U.S. state of Louisiana on record — put a rein on the rally in agricultural commodity prices. It has damaged grain elevators, and led to power outages, heavy infrastructural damage and shuttered export terminals in New Orleans. This put exports under pressure considering that corn and soybean shipments from the Gulf Coast account for about 60% of U.S. exports. Also, with the fall harvest season looming, fears of an impending glut in the U.S. market led to lower prices for corn, soybeans and wheat — the most widely planted U.S. crops.
Chicago soybeans futures are trading below $13 a bushel — the lowest since December 2020 on expectations of a demand-supply imbalance. Chicago corn futures are at around $5 a bushel — the lowest since the last week of January, thanks to lower demand from livestock feed, prospects of favorable weather conditions and concern over the disruption to U.S exports. Chicago wheat futures are trading at around $7 a bushel.
This might impact the industry’s top-line performance in the near term while the situation returns to normalcy. However, the need to replace old equipment will help offset this impact. As commodity prices recover, higher farm income will persuade farmers to spend more on equipment. The industry participants are focusing on launching products equipped with advanced technologies and features to make farming automated, easy to use and more precise across the production process. Over the long term, rising population, and elevated global demand for food and efficient water use will fuel demand for the industry’s equipment.
The industry currently carries a Zacks Industry Rank #36, which places it in the top 14% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
4 Farming Stocks to Keep an Eye On
Image Source: Zacks Investment Research
Deere & Company DE: The company’s focus on launching products with advanced technologies and features provide it a competitive edge. Efforts to expand in precision agriculture will be a significant growth driver. It is poised to gain from the need to replace old equipment. Given that it makes construction equipment, it will benefit from strong demand in the residential and non-residential construction markets as well. With the U.S Senate passing the $1 trillion infrastructure bill, the perked up investment in roads, bridges, airports and waterways represents a huge opportunity. Its cost control actions continue to drive margins. Backed by these factors, the company’s shares have surged 77% in a year’s time.
The Zacks Consensus Estimate for the Moline, IL-based company’s fiscal 2021 earnings has been revised upward by 7% over the past 90 days. The consensus mark indicates year-over-year growth of 117.5%. It has a trailing four-quarter earnings surprise of 48.1%, on average. Deere has a long-term estimated earnings growth of 21.2%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Titan International, Inc. TWI: Both of the company’s Agriculture and Earthmoving/Construction segments have been witnessing strong sales volume growth over the past few quarters. The requirement to replace old equipment will continue to support improved order levels. The earthmoving and construction end-markets look promising as the undercarriage business maintains a strong pace with increased infrastructure and enhanced construction activities acting as catalysts. Backed by the ongoing momentum in its end markets, and expected benefits from its cost reduction and cash preservation measures, the company’s shares have soared 177% in the past year.
The Zacks Consensus Estimate for the Quincy, IL-based company’s current-year earnings has been revised upward by 175% over the past 90 days. The consensus mark indicates year-over-year improvement of 156%. It has a trailing four-quarter earnings surprise of 36.3%, on average. It currently carries a Zacks Rank #2 (Buy).
Lindsay Corporation LNN: The company is well-poised to gain on the shift to mechanized irrigation given its significant advantages to farmers — water and energy savings, improved yield, reduced labor and cost effectiveness. Demand has been robust in international markets fueled by heightened concerns regarding food security due to the pandemic. A strong balance sheet, focus on introducing technologically advanced products, and investment in organic growth and acquisitions will drive growth. The infrastructure business is well-positioned for growth, backed by strong demand for Road Zipper projects and transportation safety products and higher infrastructure spending. Backed by the ongoing improvement in its order trends, shares of the company have gained 64% in a year’s time.
The Zacks Consensus Estimate for this Omaha, NE-based manufacturer of irrigation and road infrastructure products has been revised upward by 16% in the past 90 days. The consensus mark indicates year-over-year growth of 17.4%. The company has a trailing four-quarter earnings surprise of 11.9%, on average. The company currently carries a Zacks Rank #3 (Hold).
AGCO Corporation AGCO: This company will gain on the increasing replacement demand for old equipment. AGCO continues to invest in products, premium technology and smart farming solutions to improve distribution and enhance digital capabilities in order to drive margins and strengthen product offerings. These efforts along with favorable market demand and its cost control efforts have aided margin expansion across all regions over the past few quarters leading to a 84% appreciation in its share price in the past year.
The Zacks Consensus Estimate for the company’s ongoing-year earnings has moved north by 10% over the past 90 days. The consensus mark suggests year-over-year growth of 70.8%. The company has a Zacks Rank of 3 and a long-term estimated earnings growth rate of 19.4%. It has a trailing four-quarter earnings surprise of 65%, on average.
Zacks’ Top Picks to Cash in on Artificial Intelligence
This world-changing technology is projected to generate $100s of billions by 2025. From self-driving cars to consumer data analysis, people are relying on machines more than we ever have before. Now is the time to capitalize on the 4th Industrial Revolution. Zacks’ urgent special report reveals 6 AI picks investors need to know about today.See 6 Artificial Intelligence Stocks With Extreme Upside Potential>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Deere & Company (DE): Free Stock Analysis Report
Lindsay Corporation (LNN): Free Stock Analysis Report
AGCO Corporation (AGCO): Free Stock Analysis Report
Titan International, Inc. (TWI): Free Stock Analysis Report
To read this article on Zacks.com click here.