Agricultural commodities (i.e. food) are increasing in price for the same reason that all commodities are: extraordinarily loose monetary policy for almost 15 years – and especially post-COVID. Obviously food is a necessity which means that as inflation squeezes consumers’ budgets they’ll cut back on discretionary items but not necessities like food. Therefore, demand for agricultural commodities will remain strong as will the demand for the farm equipment made by Deere (DE).
DE has been caught up in the nasty commodities selloff over the past three days and a downgrade from BofA sent shares tumbling even more Monday. Nevertheless, DE raised their full year earnings guidance to $6.7 to $7.1 billion on February 18. At Monday’s closing price of $385.51, that’s only 17x forward earnings. If you want to farm, you need farm equipment and DE is the clear leader in the space. Use the correction to play agriculture with DE.