Will Agriculture Companies Get Burned by Scorching Weather?
While exceptionally hot and dry weather in the U.S Corn Belt has sent crop prices soaring, the final impact on agriculture stocks will depend on what happens to farmers' wallets.
With extremely hot and dry conditions in the U.S. Corn Belt so far this growing season, the prospects for bumper corn and soybean crops are withering. Farmers in the United States stepped up planting this year to take advantage of high crop prices and to return stocks/use ratios to a more normal level after a couple of seasons of tough weather. However, Mother Nature has reminded everyone that weather has the final say on crop production year to year.
We see the scorching conditions and rising crop prices as a potential boon for some agriculture companies. However, our enthusiasm comes with caveats. While a little bit of bad weather can be a major plus for farmer economics, an all-out crop disaster has sent farmer cash receipts reeling in the past. Our take: The offsetting effects of higher crop prices and lower yields ultimately will determine the final impact on farmers' wallets, and thus the amount of money growers have to spend on seeds, chemicals, fertilizers, and equipment for the 2013 season.
Jeffrey Stafford does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.