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Stock Strategist Industry Reports

Deere in the Spotlight

Turbulent weather, market present a long-term opportunity to buy into farm OEMs.

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It's no secret that many weather forecasters have terrible reputations. From predicting sunshine during a rained-out ball game to issuing a dire warning for what turns out to be a beautiful day, many meteorologists simply get it wrong from time to time. Stock-picking can sometimes be a similarly challenging endeavor, as investors must weigh myriad probabilities of uncertain future events. Combining these two uncertain projections--weather forecasting and stock-picking--seems like a match made for the foolish, yet that's what many try to do when predicting short-term movements in the share prices of farm equipment manufacturers such as  AGCO (AGCO),  CNH Global (CNH), and  Deere (DE).

Last year, terrible global weather conditions led to reduced U.S. corn yields, challenged Russian wheat production, and limited South American soybean growth. Although demand increased only in the low- to mid-single-digit range for these commodities, prices climbed dramatically on the back of limited supply. U.S. farmers benefited immensely, with cash receipts from crops (about 55% of all receipts) climbing 4.4% after declining 7.4% in the year prior.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.