Long-Term Opportunities in Agriculture Stocks
Fewer acres planted will likely result in lower crop input volumes, but we expect profit impacts to be short-lived.
Heavy rains have flooded farmland across much of the Midwest, leading to the lowest total U.S. acres planted in more than a decade. A weak planting season sent agriculture stocks lower since the start of April, following the release of the initial weekly USDA crop progress report. Although fewer acres planted will likely result in lower crop input volumes, we expect profit impacts to be short-lived. Amid increased June planting, some stocks have recovered. However, others remain down, sprouting attractive opportunities across our coverage.
For seed and crop chemicals producers, specific crop exposure will determine the magnitude of the profit impact. Our top pick is wide-moat Corteva (CTVA), as the company's high corn seed exposure should offset declines in other crop plantings. Shares trade in 4-star territory relative to our $41 per share fair value estimate.
In fertilizer, we see some impact on U.S. volumes for nitrogen, potash, and phosphate. However, we see little impact on global potash prices, as growth across other geographies will offset lower U.S. volumes. Our top fertilizer picks are no-moat Mosaic (MOS) and narrow-moat Nutrien (NTR). Each company trades in 4-star territory, given our $35 per share fair value estimate for Mosaic and $68 and CAD 91 fair value estimates for Nutrien.
For grain merchandisers, we see near-term risks for firms with a heavy North American footprint, as lower crop production will likely lead to lower volumes. Our top pick is no-moat Bunge (BG), whose large South American grain merchandising footprint should insulate the company from lower North American volumes. Shares trade in 4-star territory relative to our $73 per share fair value estimate.
Longer term, we favor narrow-moat ingredient producer Ingredion (INGR) as an attractive long opportunity. The company continues to invest in specialty ingredients, including plant-based proteins used in alternative meat products. Shares trade in 5-star territory relative to our $125 per share fair value estimate.
Seth Goldstein does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.