Will farmers be driving Ferraris in ten years? That's what Jim Rogers, the immortal billionaire investor who founded the Quantum fund, thinks. We'll have to wait and see if that turns out to be true, but his sentiment is based upon a few key factors that continue to put upward pressure on the prices of agricultural goods.
3 Factors That Could Effect Agriculture Stock Prices
1.) Emerging Market Demand
Emerging-market economies like China and India are growing by leaps and bounds, enriching the citizens of those countries and creating more demand for higher-end food products. But due to a combination of rolling demand and massive populations, these countries lack the infrastructure and production capacities to satisfy that 'hunger'. China, for example, is home to 22% of the world's population but just 7% of its arable land. So in order to fill the gap, these countries will need to enlarge their imports, which stand to be a boon for long-term gains in the agriculture stocks industry.
2.) Inflation Hedge
With the Dollar collapsing at a fast pace, investors continue to flock to companies that trade in 'hard assets', and the agricultural stocks complex definitely qualifies. Although corn, beans and wheat are down sharply from last year, prices have recently begun to rebound and move higher. Hard assets are currency neutral and will continue to be a great investment destination for anyone alarmed about the ruining of paper currencies.
3.) Global Weather Volatility
Farmers live in a shaky world. One season, they spend months praying for rain to nourish their crop; then in the next season, the crop gets wiped out because of too much rain. Just this summer, sugar prices soared to a new 28-year high after a drought killed production in India. Ag producers need just the right balance of rain, sunshine and nutrients to produce the desired yield, something that consistently effects production and, in turn, prices.
Now that we have a essential understanding of the underlying essentials affecting prices and consumption in agriculture, let's go ahead and take a look at some companies that appear to be well positioned to profit from the trend.
4.) Agriculture Stocks
The Anderson's, Inc. (ANDE - Analyst Report) is an agriculture producer and transporter in the U.S. The company's share price took a hit last year but has since bounced back nicely as the economy and its estimates have recovered. With the current-year Zacks Consensus Estimate pegged at $2.22, this Zacks #1 Rank stock offers some value with a P/E of 15X. The Zacks Consensus Estimate for agriculture stocks next year is bullish, projecting 27% earnings growth for this agriculture stock.
China Green Agriculture, Inc. (CGA - Snapshot Report) operates as a fertilizer producer out of China. Shares posted big gains this year as China's economy has remained hot (recently reporting GDP growth of 8.9%). Next year's agriculture stocks growth projection for the company is a bullish 57%.
Zhongpin Inc. (HOGS) has posted huge agriculture stocks gains in 2009, with its share price more than doubling after bottoming out just above $7 in early March. The Chinese-based agriculture producer and Zacks #1 Rank stock offers big value in a very bullish environment, trading at just 10X projected current-year earnings, with a solid 18% next-year growth projection to boot.
Deere Co. (DE - Analyst Report) builds and manufactures farming machines and equipment. Farmers will be seeking to upgrade their equipment if they're raking in big bucks, and that will provide shares of DE with a very nice boost. As it stands, the company's share price is down from its peak in early 2008, but has begun to rebound on a nice earnings beat last quarter and rising agriculture stocks estimates.
Agriculture Stocks Conclusion
When you take a composite view of the agricultural stocks landscape, it's easy to see that there are a number of macro-level trends that could produce long-term growth prospects. It's a great way to round out your portfolio and give you a chance to outperform the averages over the long haul.
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