Agricultural bull market and high dividend yields push up the stock price of this top agricultural company
The latest world agricultural supply and demand report pushes up agricultural prices
The Fed says inflation is "temporary," but food commodity prices continue to accelerate
ADM is a member of ABCD Group, which provides food to people all over the world
Stock trend is bullish, dividends are good
ADM's earnings should continue to exceed expectations
The commodity bull market started from March to May 2020 due to the low point triggered by the global new crown pandemic. Just as in 2008, the global financial crisis pushed raw material prices to multi-year lows. At that time, the central bank released liquidity and government stimulus measures planted the seeds of inflation, pushing commodity prices to multi-year highs from 2011 to 2012. In some cases, it even reached historical highs.
Although the 2020 COVID-19 pandemic is very different from the 2008 crisis, central banks and governments of various countries have used the same monetary and fiscal policy tools to stabilize the economy. The only difference is that in 2020, the number of liquidity and stimulus measures is much higher than in 2008. In the past year, prices have exploded. The consumer price index has been growing at the highest rate in decades. Grain and oilseed prices will rise to their highest levels in more than eight years in 2021, and futures market trends remain bullish.
Archer Daniels Midland Corporation (NYSE: ADM) is a leading agricultural company that purchases, transports, processes, and sells agricultural products and ingredients in the United States and internationally. The bull market in the agricultural product market means that the company that feeds the world will make more profits.
The latest world agricultural supply and demand report pushes up agricultural prices
The World Agricultural Supply and Demand Forecast Report issued by the US Department of Agriculture every month is a standard for measuring agricultural products grown in the United States and around the world. Prices of corn, soybeans, wheat and cotton rose after the latest report was released on August 12. In the past year, prices of agricultural products have risen significantly.
The price of corn futures in recent months rose from US$3.53 per bushel to US$5.6825, an increase of 61.0%.
Soybean prices rose from 9.67 US dollars per bushel to 13.73 US dollars, an increase of 42.0%.
The price of wheat on the Chicago Board of Trade rose from 5.5175 US dollars per bushel to 7.6225 US dollars, an increase of 38.2%.
The price of live cattle rose from US$1.08225 per pound to US$1.28125, an increase of 18.4%.
During the same period, the price of lean pigs rose from 56.70 cents per pound to 86.525 cents, an increase of 52.6%.
Cotton futures prices rose from 65.79 cents per pound to 94.32 cents, an increase of 43.4%.
Rising prices of agricultural products tend to increase the profit margins of companies in the industry. With the bullish trend, the prospects for further gains in profits are heating up. Inflation will continue to empty the pockets of consumers.
The Fed says inflation is "temporary," but food commodity prices continue to accelerate
The consumer price index in May, June and July hit a new high for many years. The core CPI that the Fed focuses on when considering monetary policy does not include food and energy prices, because these prices may fluctuate due to weather and other unexpected events and factors. Core CPI rose in July lower than expected 0.3%.
At the same time, since 2020, food and energy prices have risen steadily. Supply chain bottlenecks, relaxation of travel restrictions, central bank and government stimulus measures have led to a surge in demand. These factors have collectively pushed commodity prices to multi-year highs in the past few months, and in some cases even reached historical highs.
The Fed has always declared that inflationary pressures are "temporary," but the overall rise in prices of basic raw materials is suppressing consumer spending. The price of food has been rising.
ADM is a member of ABCD Group, which provides food to people all over the world
ABCD Group is composed of ADM, Bunge (NYSE:BG), Cargill and Louis Dreyfus. Among them, Cargill and Dreyfus are private companies.
ADM's website highlights many products and services that the company provides to people around the world. The company was founded in 1902 and is headquartered in Chicago in the middle of the United States.
Stock trend is bullish, dividends are good
ADM's stock price is at $62.40, and its market value is slightly below the level of $35 billion. The average daily trading volume exceeds 2.44 million shares. An annual dividend of $1.48 is equivalent to a yield of 2.37%.
ADM's share price rose in 2021 with rising agricultural prices, and hit a record high in June.
ADM shares rose to a high of US$69.30 in June, and then pulled back to US$62.46 on August 16. ADM has shown a volatile upward trend in the past 30 years.
The price of food is positively correlated with the growth of the global population. According to data from the US Census Bureau, the global population has grown from approximately 6 billion at the beginning of this century to 7.783 billion on August 16, an increase of nearly 30%.
Every year the world will increase more population, the world population in 2021 will be higher than 2020, and will increase again in 2022. The potential market for ADM and other ABCD companies continues to grow. Rising prices of agricultural products tend to increase the profit margins of these companies.
ADM's earnings should continue to exceed expectations
The company's latest earnings report is very eye-catching. ADM has an excellent revenue record in the past four quarters
ADM's earnings per share in the second quarter were US$1.33, while the market generally expected it to be US$1.03. The company's earnings for four consecutive quarters exceeded market expectations.
A survey of 15 analysts shows that the average target stock price is US$67.54, with an estimated range of US$55-76 per share.
The Fed may declare that inflationary pressures are "temporary." However, as the United States and the Northern Hemisphere usher in the 2021 harvest season, the trend of agricultural product prices will continue to rise.
In the coming months and even years, rising agricultural prices will support ADM's stock price higher. At the same time, the company also offers very attractive dividend returns.
