Higher projections on farm income from USDA suggest look at stock pick Deere now

11/26/2013 7:47 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

U.S. corn and soybean crops are on track to be so large for the 2013-2014 harvest year that farm income will climb 8.6% to $131 billion from the $121 billion forecast in August even though grain prices have declined, according to the U.S. Department of Agriculture. That new projection is a 15% increase from the 2012-2013 harvest year.

U.S. farmers are projected to produce a record 14 billion bushels of corn this harvest year and 3.6 billion bushels of soybeans. (That would be the third largest soybean harvest on record.) Corn prices on the Chicago Board of Trade are down 39% this year.

The higher than expected farm income is good news for companies that sell to farmers, which have been forecasting slower sales in 2014 on lower grain prices. For example, in its November 19 conference call Deere (DE) told Wall Street to expect a 5% to 10% drop in unit sales of agricultural equipment in the United States and Canada for the 2014 fiscal year on lower sales of higher horse power tractors and combines. Sales in Europe, Deere said, would be down 5% on lower commodity prices and lower farm incomes. In South America Deere forecast a similar 5% to 10% drop.

The low expectations for 2014 and the increase in forecasts for farm income raise the possibility of positive surprises for Deere and other companies that sell into the agricultural sector such as nitrogen fertilizer market-share leader Yara International (YAR.NO in Oslo or YARIY in New York.) The prices on both of those stocks have recently moved above their 50-day moving averages. I might wait for a positive cross (where the 50-day average moves above the 200-day moving average) before buying, considering the record highs that U.S. indexes have set recently, but these stocks are starting to look interesting to me. (Deere is a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com//  .)

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Deere as of the end of June. It did own shares of Yara International. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.
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