According to the U.S. Department of Agriculture, farm incomes will be the lowest since 2009 this year. This translates to an 11.5% drop to $71.5 billion in 2016. Farm income in 2015 was $80.7 billion.
When farmers make less, they spend less. When they spend less companies that produce everything from farm equipment to seed to fertilizer feel their pain, not to mention a loss of revenue.
Higher Yields Equal Lower PricesIronically, the more grain crops farmers grow in a given year, the less those crops are worth when they go to market. It’s supply and demand at its best and worst.
The best scenario for any farmer is a personal bumper crop year while everyone else does poorly. Unfortunately that doesn’t happen often.
This year is a bumper crop year – for nearly everyone.
Mike Moellenbeck, Vice President of grain marketing with River Valley Cooperative in Davenport, Iowa said, “We’re talking about record production, record yield and when it’s all said and done with, even though we’ve got record demand, we’re still going to have basically record carry-over stock going into next year.”
As a result, Moellenbeck said, the price of corn is below $3 per bushel, the lowest it’s been in at least five years.
Stocks Taking A Hit
As mentioned above, lower income for farmers has an economic impact on all businesses that do business with those who till the land.
Right out of the gate, farmers will spend less on equipment, a fact noticed by Deere & Co. (NYSE:DEC), which builds and sells everything from tractors to combines to just about any type of equipment needed in farming.
Another farming giant is Monsanto Co. (NYSE:MONC), a leading global provider of agricultural chemicals. Monsanto and Deere are not helped by a U.S. Department of Justice suit designed to block Deere from acquiring a line of high-tech farming equipment from Monsanto.
And The Winners Are …
Under any economic conditions, there are almost always winners and losers. With corn sitting near $3 per bushel, some companies (and their stockholders) smell profit.
With grain prices at historic lows, companies like Archer-Daniels-Midland (NYSE:ADMD), which uses corn – lots of corn – stand to gain. The cheaper ADM can buy that corn, the better. With analysts suggesting the company’s stock will either perform or outperform the market and Buy ratings from both Zacks and TipRanks, the stock might be worth considering.
A company that might not be on the radar for many investors is Ingredion Inc. (NYSE:INGRC). Formerly known as Corn Products International, this company specializes in the production of dextrose and starch products and will benefit from lower corn prices.