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4 Farm Equipment Stocks to Buy as Soybean, Corn Prices Gain

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·8 min read
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The United States Department of Agriculture (USDA) released its acreage report on Jun 30, per which both soybean and corn plantings came in lower than market expectations. Its grain stocks report also added to concerns as corn stocks were at their lowest levels since 2014, while soybean stocks were at six-year lows. This sparked a rally in U.S. corn and soybean futures, which, in turn, pushed wheat futures higher. High demand for these crops with tight supplies is expected to stoke prices further.

Low Acreage & Stocks Bullish for Crops

Per the USDA’s report published on Jun 30, U.S farmers planted 92.7 million acres of corn, which came in lower than expectations of 93.7 million but higher than the USDA’s previous estimate of 91.14 million provided in March. For soybeans, total acreage was at 87.6 million — lower than expectation of 89 million and in line with the USDA’s March estimate of 87.6 million. Wheat planted area for 2021 is estimated at 46.7 million acre — the fourth lowest figure since records began in 1919. It was bit higher than the trade’s expectation of 46 million and the USDA’s March estimate of 46.4 million.

On top of this, the body reported that it estimates corn stockpiles at 4.11 billion bushels as of Jun 1, 2021, down 18% year over year and the lowest since 2014. Domestic soybean stocks came in at a six-year low of 767 million bushels as of Jun 1, 2021, reflecting a year-over-year plunge of 44%. Wheat stored in all positions on Jun 1, 2021 was down 18% from a year ago to 844 million bushels, hitting a six-year low. Notably, all the figures came in lower than expectations.

Per a previous report, the USDA predicts domestic 2021-22 soybean ending stocks at 155 million bushels — at a seven-year low. For wheat, the estimated ending stock is at 770 million bushels, down 10% from the revised 2020-21 ending stocks. The estimated ending stock for corn is 1,357 million bushels for 2021-22.

Triggered by the supply concerns, U.S. soybeans futures for November delivery closed at $14.02 per bushel, gaining 7% in a day. Soybean prices are up 11.2% year to date. Chicago corn futures were trading around $7.2 per bushel — a level not seen since mid-May, amid concerns about tighter global supplies and low domestic inventories. So far this year, corn prices are up 50%. Chicago wheat futures were trading around $6.8 per bushel, recovering from a two-month low of $6.3 per bushel touched earlier this month. Wheat prices are up 3.5% so far this year.

Corn and soybeans are the most important grains for cash crop farming in the United States. In the backdrop of strong demand and concerns about the ongoing drought conditions across the Northern Plains, these numbers will only push up prices further. On top of this, Brazil’s second corn crop will be lower this year due to the ongoing drought that the government has declared to be the worst in nearly a century. Notably, Brazil’s current second corn crop accounts for 76% of the country’s total corn production and bridges the gap in global exports ahead of the U.S. harvest in September. This expected production decline from Brazil will further widen the gap between demand and supply.

Upbeat commodity prices will continue to drive the Zacks Manufacturing - Farm Equipment industry. This will aid farm income and in turn encourage farmers to spend on agricultural equipment that will support the industry in the days ahead. The companies in the industry are now increasing investments in precision farming and capabilities, in order to keep up with customers’ evolving demands. Initiatives to expand in the precision agriculture technology will be a game changer for industry players. The industry has gained 117% in a year, compared with the S&P 500’s rally of 39.1%.

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Zacks Investment Research

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The industry currently carries a Zacks Industry Rank #21, which places it in the top 8% 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.

We thus suggest four Farm Equipment stocks carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy). These stocks have positive earnings growth projections for the current year and been witnessing upward revisions of late.

4 Farming Stocks to Grab

Lindsay Corporation LNN: Based in Omaha, NE, Lindsay provides a variety of proprietary water management, and road infrastructure products and services. The company is witnessing improving order levels aided by favorable agricultural market conditions in North America. Demand has also been strong in international markets driven by growing concerns regarding food security as a result of the pandemic. Its infrastructure business is poised to grow on strong momentum in Road Zipper Systems.

The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has moved upward by 2% over the past 90 day, suggesting year-over-year growth of 1%. The company has a trailing four-quarter earnings surprise of 8%, on average. This stock has appreciated 82.4% over the past year. The company currently flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere & Company DE: Headquartered in Moline, IL, Deere manufactures agricultural and construction equipment. The company will gain from higher demand in the agricultural sector and the need to replace an ageing fleet. Strong demand in the residential market and improvement in the non-residential market will drive demand for its construction equipment. Also, given that it distributes road building equipment it stands to benefit from the increased spending on infrastructure. Moreover, the company will gain from concerted focus on launching products with advanced technologies and features. It is assessing cost structure by reviewing organization efficiency and footprint assessment, which in turn will help improve margins.

The Zacks Consensus Estimate for this Zacks #2 Ranked company’s earnings for the ongoing fiscal indicates year-over-year improvement of 106%. The Zacks Consensus Estimate for this year’s earnings has gone up 12.8% in the past 60 days. The company has a trailing four-quarter earnings surprise of 68%, on average. The company has an estimated long-term earnings growth rate of 20%. Its shares have soared 124.9% in a year’s time.

AGCO Corporation AGCO: Based in Duluth, GA, AGCO is a leading manufacturer and distributor of agricultural equipment and related replacement parts. Stabilization of U.S farm sector on the back of improved commodity prices will lead to higher agricultural equipment demand in the near term. This, along with the need to replace old equipment, will drive AGCO's top-line. Further, the company’s investments in technology, product innovations, smart farming solutions and cost-control initiatives will fuel growth.

The Zacks Consensus Estimate for the company’s ongoing-year earnings suggests year-over-year improvement of 54.6%. The consensus mark has moved up 19% over the past 90 days. The stock has rallied 141.6% in the past year. It has a trailing four-quarter earnings surprise of 428%, on average. The company currently has a Zacks Rank of 2 and an estimated long-term earnings growth rate of 16.4%.

Kubota Corporation KUBTY : This Osaka, Japan-based company manufactures and markets machinery and related solutions in the food, water, and environment markets in Japan, North America, Europe, the rest of Asia, and internationally. The company will continue to benefit from strong demand for agriculture due to improving commodity prices. Also, strong demand from construction sectors will support demand for its construction machinery worldwide.

The Zacks Consensus Estimate for this earnings for the ongoing fiscal suggests year-over-year growth of 28%. The Zacks Consensus Estimate for this year’s earnings has gone up 5.8% in the past 90 days. The company has a trailing four-quarter earnings surprise of 0.5%, on average. The company has an estimated long-term earnings growth rate of 10.2%. Shares of the Zacks #2 Ranked company have gained 36.6% in a year’s time.

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Zacks Investment Research

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Deere & Company (DE) : Free Stock Analysis Report

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