3 Ways to Increase Your Agriculture Yield

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Recently, Jim Rogers -- billionaire investor, market seer, and adventurer extraordinaire -- was holding forth on one of the business networks about current market conditions. In addition to having racked up a sizable fortune through years of canny investing, nearly two decades ago Rogers penned a still well-worth-reading tome, Investment Biker, detailing an around-the-world journey that he and a companion completed atop a pair of BMW motorcycles.

During the interview, Rogers noted a current preference for investing in agriculture. He's always leaned toward commodities, but he provided no detail on his current preferences. As a result, a viewer came away clueless about whether Rogers is leaning toward trading pork bellies or buying shares in iconic tractor and equipment manufacturer Deere (NYSE: DE  ) .

Fortunately, as is the case with most matters, I'm not without my own opinion about agriculture, albeit one that, as with most industries, is subject to alteration. Five years ago, for instance, I'd have looked long and hard at the potash miners, including Canada's PotashCorp, the world's second-largest producer after Russia's Uralkali, or Mosaic, a sizable Minnesota producer of the crop nutrient and a subsidiary of Cargill.

But alas, life in the world of potash isn't what it used to be. In the decade preceding 2009, potash prices increased about fivefold, and you can probably guess what happened next: Capacity was ginned up excessively, demand dipped, and prices retrenched. Today, potash loaded at Vancouver commands about $425 a ton, a precipitous slide from its $860-per-ton price tag three years ago. So let's consign the fertilizer component to the "nyet" bin for now.

With that quick analysis completed, I'm inclined to watch other agriculture-related companies closely, potentially even putting a few shekels into one or more of their shares. In order of my perception of their attractiveness, I'd begin with Monsanto (NYSE: MON  ) , a producer of both conventional and engineered seeds, along with an array of herbicides. Next up would be Deere, followed by DuPont (NYSE: DD  ) , some of whose segments compete head-to-head with Monsanto.

Until about a decade ago, St. Louis-based Monsanto was a wide-ranging chemicals, bioindustry, and medical company. Today, the purely agricultural entity produces a wide range of seeds, including row crop seeds, such as corn, soybean, cotton, and canola seeds, along with about a dozen varieties of vegetable seeds. Beyond that, its agricultural productivity segment manufacturers numerous herbicides for use in agricultural, industrial, and other applications. The company's products are used in about 150 countries worldwide.

In January, Monsanto reported a booming first quarter for its 2013 fiscal year. For the period ended Nov. 30, typically a slow one for the company, corn sales grew by 27% year on year, with much of that growth occurring in South America. Specifically, the company earned $339 million, or $0.63 per share, up from $126 million, or $0.23 a share, for the first quarter of fiscal 2012. Currently, 18 of the 25 analysts who follow Monsanto rate its shares at least a buy.

If you're in the market for a large, medium, or utility tractor, a combine, or a sugarcane harvester, you might seek out Amsterdam-based CNH Global. But more than likely you'll avail yourself of the offerings of Moline, Ill.-headquartered Deere.

In addition to its recognizable green and yellow farm equipment, the company manufactures a variety of mowers, golf-course equipment, and integrated agricultural management systems technology. Further, its construction and forestry segment turns out all manner of crawler dozers and log skidders and loaders, to name just a few of its products.

On Wednesday, Deere said it earned $649.7 million, or $1.65 per share, for the quarter ended Jan. 31. Those figures compare with $532.9 million, or $1.30 for the comparable quarter a year earlier. Analysts who follow Deere had anticipated per-share earnings of $1.39 for the latest quarter.

As I noted, Delaware-based DuPont competes with Monsanto is a number of areas. While it also operates several other segments, including electronics and communications, performance chemicals, and performance materials, DuPont's largest and most noteworthy group is its agriculture segment. That unit produces corn hybrid, soybean, canola, sunflower, sorghum, wheat, and rice seed products. It also manufactures fungicides and insecticides.

For the final quarter of 2012, the company earned $111 million, or $0.12 per share, a sharp decline from the comparable year-over-year $373 million, or $0.40 per share. Nevertheless, DuPont topped the analysts' consensus by $0.07 per share. Significantly, while some of the company's segments struggled amid global economic softness, its agriculture unit expanded its own contribution to DuPont's top line by 18%.

Foolish takeaway
Unless humankind develops both a viable substitute for regular food consumption and an ability to predictably control climactic conditions, my bet will remain with agriculture as an area to which Fools should pay special attention. While there are numerous other companies of merit in the industry, I believe that the three I've discussed here provide a solid foundation for examining this vital sector.

Caterpillar is a competitor to Deere in a few specific areas. More broadly, it's the market-share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in our brand-new report. Just click here to access it now.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2013, at 10:34 PM, funfundvierzig wrote:

    A major constricting problem with DuPont is the fact the already thin competence of its entrenched Senior Management is further thinned and diffused over a hodgepodge of 50 mostly unrelated businesses.

    The highly hierarchical style of conglomerate organisation does not work well in the fast-moving global economy of the 21st century. And massive mistakes are made and calcified within the inflexible confines of the organization, such as the tree-killing dandelion herbicide, DuPont Imprelis, and the flawed GM seed trait, DuPont OptimumGAT. Both are $billion-plus blunders of Management.


  • Report this Comment On February 13, 2013, at 11:57 PM, eyeknonothing wrote:

    I can only say that I sincerely hope that anyone who invests in Biotech loses everything they own.

  • Report this Comment On February 15, 2013, at 5:48 AM, TempoAllegro wrote:

    What about Agrium (AGU), which also sells potash fertilizer and agricultural products? I believe that they have the capability to analyze a crop disease if you provide them a sample and then to either provide or design the most effective way to handle the problem.

    Although it is based in Canada, Agrium seems to be a hybrid of both Monsato and Mosaic rolled into one.

    Another interesting play is SQM, a Chilean miner that also has potash as well as excellent deposits of iodine and lithium.

    While potash prices are down, this may be a good opportunity to buy into one of the big fertilizer companies. The world population is increasing and arable land decreasing a bit, so only better productivity through fertilizer, seeds, and better farming machines will solve the long-term challenge.

    There are lots of ways to play this space without getting into genetically modified seed providers. While I have no doubt those seeds will provide more resilient crops that produce more reliable yields when we need them, we need to be vigilant in answering reasonable questions about introducing these new varieties into the food supply. Deterioration of our diet over some decades has contributed greatly, most likely, to generally poor health as can be seen in such things as the obesity epidemic in the USA.

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