What happened
Shares in insecticide and herbicide producer FMC (FMC 1.17%) rose 12.2% in March, according to data provided by S&P Global Market Intelligence. The move comes in concert with a substantial increase in share prices of companies in the U.S. agriculture sector.
The conflict in Ukraine is likely to impact crop exports from Russia and Ukraine negatively. The potential lack of crop exports from those countries is pushing crop prices higher, which usually means more potential cash income for farmers. In anticipation, farmers will be required to seed more crops and spend on the herbicides and insecticides sold by companies like FMC. Therefore, the market bought the stock hoping that FMC would have a bumper year.
Also, the far-reaching impact of the conflict has several consequences that aren't immediately seen, but could be beneficial to FMC. For example, Russia is a significant exporter of fertilizer and sanctions against that country have sent fertilizer prices soaring and created potential shortages. Consequently, farmers could be plant more soybean (a crop that typically requires less fertilizer than corn or wheat). There could also be more demand for rice as a replacement for grain -- which is probably the reason the price of rice is soaring, too.
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Around 61% of FMC sales come from insecticides, with 26% from herbicides. In terms of end markets by crop, it generates about 19% of its sales from fruit and vegetable crops, 19% from soybeans, 11% from rice, and 10% from sugar. As many of its customers see high prices for their crops, they will be encouraged to harvest more.
So what
There's little doubt that FMC is going to have a strong 2022. Indeed, even before the war started, FMC's CEO Mark Douglas said on the earnings call in February, "Looking ahead to 2022, we anticipate strong commodity prices will continue to drive demand for our differentiated product portfolio." Management will likely reiterate that viewpoint on the next earnings call and could upgrade its current guidance for a 7% increase in full-year revenue in 2022. That said, it's not entirely smooth sailing for FMC as rising raw material, logistics, and packaging costs will put pressure on profit margin.
Now what
FMC will release its first-quarter 2022 earnings report in early May, and investors should keep a close eye on developments there, including any upgrade to guidance. The company is set for a strong year, but its markets are highly cyclical, and there's no telling what the crop markets will be like next year.
