The supply/demand balance is almost perfect.Ī Teucrium chart shows that agriculture markets usually trade close to cost unless a major supply shock occurs.Īnd speaking of supply shocks, corn crop conditions in the US are falling off a cliff. That happens in markets with high competition. TradingView (Black = ICE Brent, Orange = CBOT Corn)Īgain using corn as an example, it's fair to say that agricultural prices trade very close to production costs. The correlation isn't 100%, but the bigger picture shows a strong relationship. The chart below shows the correlation between ICE Brent crude oil and CBOT corn futures (orange). It highlights issues that I haven't stopped talking about since 2020: the energy and agriculture correlation. The title was "How the energy crisis is exacerbating the food crisis". That ended in 2020.īased on this context, I just read an article on the website of the IEA, the International Energy Agency - easily confused with the EIA (U.S. The same is happening to wheat, which enjoyed a number of years with strong supply and underperforming demand prior to the pandemic. This year will be very close, while 2018 through 2020 all saw lower production than demand. Moreover, and using corn as an example, we're increasingly encountering periods where usage is outpacing production. Most additional demand for food will continue to originate in low- and middle-income countries, while in high-income countries it will be constrained by slow population growth and a saturation in the per capita consumption of several food groups. over the next decade, and to be mainly driven by population growth. Global food consumption, which is the main use of agricultural commodities, is projected to increase by 1.4% p.a. The problem is that demand is expected to grow by 1.4% per year. As I discussed in a recent Deere & Company ( DE) article, the OECD projects an annual increase in global agricultural production of 1.1% per year in its 363-page long 2022-2031 outlook. Starting with the big picture, the global food supply is tight and expected to remain tight. And what investors are seeing is a tight market for fertilizer, crop supply, energy, and related things. What followed was more upside to a current share price of close to $54.Īs I discussed in prior agriculture articles, the market is forward looking. Investors simply shrugged it off as expectations being too high as the stock closed the day after earnings with a rally of almost 6% from the daily lows. As the overview below shows, the company missed big on key numbers like phosphates where it did $642 million in gross profit. The company did $5.37 billion in revenue, which is an improvement of 91.8% versus 2Q21, yet it was $250 million below estimates.Īdjusted EPS came in at $3.63 (some websites say $3.64), which missed estimates by $0.36. Let's start with the company's earnings, which were released on August 1. In this article, we will go over recent developments, the company's valuation, and why I believe that there's a lot of room left for capital gains. Even though it missed earnings estimates by a somewhat wide range, it did not keep investors from pushing the stock up, providing a higher than 20% return since my article was published in July. That's where my favorite fertilizer company, the Mosaic Company ( NYSE: MOS), comes in. Moreover, energy prices are rising again, providing more upside for fertilizers. Crop prices are rising despite good news from Ukraine when it comes to releasing much-needed exports as weather headwinds persist on top of already high demand and tight supplies. The agriculture bull market is returning. Alfribeiro/iStock via Getty Images Introduction
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