While I'm not much of a fan of rain, I do understand its importance to agriculture. Last summer was a terrible one for the urban farmer in me as a lack of rain completely decimated my little backyard garden. Mother Nature didn't care to keep up the watering as I went on my summer vacation which turned my attempt at a green thumb into a brown wasteland.
Farmers, too, face a real battle when the rains cease, which is why many turn to specialized seeds which are designed to grow in dryer conditions. These seeds are designed to yield more on less land which can enable farmers to profit from higher crop prices; however, these seeds come with a cost. That's why drought conditions are not something most farmers look forward to, but they can boost the stocks at these three agriculture companies.
DuPont (NYSE: DD )
The science and engineering company recently reported earnings which were driven primarily by record performance in the company's agricultural business. The agriculture division saw a 14% increase in sales, which reflected strong corn seed sales in North American and Brazil along with strong crop protection volumes in North America and Latin America. High crop prices and record droughts drove farmers to DuPont's technologically advanced seeds and crop protection systems.
The company is seeing strong interest in its AQUAmax hybrids. Last year the product demonstrated a 9% yield improvement against competitors in environments with limited water. This is leading orders to exceed expectations and the company anticipates 7 million acres in North America will be planted with AQUAmax while interest in Europe also remains high.
Monsanto (NYSE: MON )
The leading seed technology provider also reported strong quarterly earnings which were driven by the strength of its seed genomics segment. The company expects record corn volumes in 2013, which will be driven in part due to its success in Brazil and in the U.S. This enabled the company to raise its full-year guidance as it benefits from farmers seeking its yield-enhancing products.
Dow Chemical (NYSE: DOW )
Joining the group with excellent performance in its agricultural science segment is Dow Chemical. Sales in the segment rose 14% overall to surpass $2 billion as new products drove sales. The company's seeds, traits, and oils products were especially strong as sales grew 37% year over year. This was driven by strong farmer demand from its SmartStax products, which were developed with Monsanto, in both North America and Latin America.
The Foolish bottom line
While not everyone is a fan of the products these companies produce, demand from farmers continues to be strong. High crop prices are driving the demand for yield-enhancing products. Because droughts can cause crop prices to skyrocket, these three companies don't mind a good drought, as its great for growing both sales and profits.
You might not be a fan of the products these companies produce but with less and less arable land available around the world, increasing yields from existing plots will become vitally important to keeping up with expected population growth. Cheap and effective fertilizers could be the key to achieving this goal. That's why you might be more interested in looking at the global leader in potash production, PotashCorp, which has established several barriers to entry that make it nearly impossible for competition to break through. Click here now to access The Motley Fool's premium research report that covers precisely what these barriers to entry are and details several other key reasons why PotashCorp presents such a compelling investment opportunity today.