In an environment of soaring food prices, it makes sense to start looking at stocks in the agricultural sector. As such, insecticide and herbicide manufacturer FMC Corporation (FMC 1.63%) is worth monitoring. While the company won't evade the supply chain issues bedeviling the rest of the economy, its earnings have enough positive momentum to justify buying the stock. Moreover, FMC's strong run in 2022 has legs, and here's why. 

Introducing FMC

The company generates 60% of its sales from insecticides (substances used to control or kill insects that damage crops), with a further 27% from herbicides (substances used to control unwanted plants). The company's revenue is relatively diversified by geography and end-market crop. Latin America (32% of 2021 sales) is traditionally its largest region by sales, followed by Asia (25%), North America (22%), and Europe, Middle East, and Africa, or EMEA (21%). CEO Mark Douglas expects crop protection markets in Latin America, North America, and Asia to be "up mid-single digits" in 2022. However, he forecasted EMEA to be "down low single digits. The war in Ukraine may further reduce market growth in the EMEA region." More on that in a moment.

Fruit and vegetable shoppers in a market.

Image source: Getty Images.

FMC's largest markets are soybeans (20% of 2021 sales), with fruit and vegetables (19%) and rice/sugar/corn/cereals with 9% apiece in terms of end-market crops. FMC is a play on a general rise in food commodities rather than being overly reliant on any one crop. There may be some upside from a shift in production from corn to soybeans this year as farmers seek to avoid dramatically higher fertilizer prices (corn tends to need more fertilizer than soybeans).

Favorable end markets

FMC's diversified exposure stands it in good stead to overcome the loss of sales to Russia and Ukraine. It also means the company is well positioned to take advantage of the soaring food prices occurring, partly due to the ongoing conflict in Ukraine. In a sign of the strength of underlying demand, management noted that the 16% year-over-year organic sales growth in the first quarter was partly due to a pull-forward in demand with customers looking to secure supplies in advance. 

Moreover, the strength of the company's end markets is illustrated in the fact that FMC was able to command pricing power. Breaking out the organic sales growth figure of 16% in the quarter, 8% came from volume growth and a whopping 8% from pricing. In a nutshell, FMC hiked prices to offset rising costs (not least from the supply chain issues dogging the global economy).

Of course, most companies are looking to offset high costs with price increases, but the question is can they make them stick without eroding demand? In FMC's case, customers are pulling forward orders, and the fact that commodity food prices keep rising is a boon to the company.

Moreover, end-market conditions will likely remain strong in 2022 due to multi-year lows in stocks-to-use ratios across the agricultural sector. For example, the United States Department of Agriculture sees wheat prices moving higher on the back of a projected eight-year low for the stocks-to-use ratio of wheat in 2022/2023. 

New product sales

In addition, the company is making significant progress with its strategic plans and market positioning. For example, the new products it introduced in the last five years are now expected to generate over 30% of full-year revenue. Moreover, they increased by 50% in the first quarter. It's a sign of underlying solid growth, and the success of its new product introductions comes at a time of strong demand -- something that augurs well for its market position in the future. 

A soybean field.

Image source: Getty Images.

Looking forward

Putting it all together, FMC is well positioned to take advantage of buoyant end markets, as it has the product portfolio and pricing power to offset rising costs. Ultimately, its customers will pay higher prices for herbicides and insecticides to increase the yield for commodity crops that are also rising in price. FMC is in a category of agriculture stocks that represent an excellent way to profit from higher food prices and protect your portfolio from rising inflation.