This article is written exclusively for Investing.com.
Latest WASDE report sends agricultural prices up
Fed may say inflation is "transient", but food commodities continue to accelerate
ADM: A of the ABCD group of companies that feed people worldwide
Bullish trend in the stock and a juicy dividend
ADM should continue to exceed earnings expectations
Commodity bull market started with March through May 2020 lows triggered by the global pandemic. In 2008, the global financial crisis pushed commodity prices to multi-year lows. Meanwhile, the central bank's liquidity and government stimulus measures created inflation seeds that propelled commodity prices to multi-year and in some cases record highs in 2011-2012.
Although the 2020 pandemic is a very different event from the 2008 crisis, central banks and governments have used the same monetary and fiscal policy tools to stabilize the economy. The only difference: in 2020, the amounts of liquidity and stimulus were much higher than in 2008. Last year prices were explosive. It has risen at the fastest rate in decades. Grain and oilseed prices rose to their highest level in more than eight years in 2021, and futures market trends remain optimistic.
The Archer-Daniels-Midland Company (NYSE:) is a leading agricultural company that purchases, transports, processes and trades agricultural commodities, products and ingredients in the U.S. and internationally. A bull market in agricultural commodities means more profit for the company that feeds the world. Estimates() report is the gold standard for the commodities growing from the fertile soil in the US and worldwide. Prices of corn, soybeans, wheat and cotton rose after the latest report of April 12. Prices of agricultural commodities have risen significantly in the past year.
Nearby rose from $3.53 to $5.6825 per bushel or 61.0%.
rose from $9.67 to $13.73 per bushel or 42.0%.
The CBOT rose from $5,5175 to $7,6225 per bushel or 38.2%.
valued from $1.08225 to $1.28125 per pound or 18.4%.
have risen from 56.70 cents to 86.525 per pound or 52.6% over the period.
moved from 65.79 cents to 94.32 cents per pound or 43.4% higher.
Higher prices of agricultural products tend to increase profit margins for companies in the sector. The prospects for even higher levels are increasing as the trends are bullish. Inflation continues to take a bite out of consumers' wallets. The Fed may say inflation is "transient," but food commodities continue to accelerate
May, June and July saw inflation at its highest in years. Economists at the Fed are focused on considering monetary policy, which excludes food and energy, as those prices can be volatile due to weather and other exogenous events and factors. Core CPI rose a lower-than-expected 0.3% in July.
Meanwhile, food and energy prices have risen steadily since 2020. Bottlenecks in supply chains, rising demand as vaccines eased social distancing guidelines, central bank and government stimulus measures have combined to push commodity prices to multi-year, and in some cases, all-time highs of recent months. .
The Federal Reserve continues to call inflationary pressures "transient", but the general increase in essential commodity prices is taking a significant bite out of consumer budgets. When it comes to food, prices continue to rise. of the ABCD group of companies feeding the world. ADM, Bunge (NYSE:), Cargill and Louis Dreyfus are the other leading companies. Cargill and Dreyfus are privately owned.
ADM's website highlights the many products and services the company offers to nourish people around the world. The company has been around since 1902, with headquarters in the heart of the United States, in Chicago, Illinois. ]At the $62.40 level, ADM's market cap was just below the $35 billion level. The shares are traded on average more than 2.44 million daily. The annual dividend of $1.48 equates to a return of 2.37%.
ADM shares rose with agricultural commodity prices in 2021, reaching a new all-time high in July.
Source: bar chart
As the chart above shows, ADM shares rose to a high of $69.30 in June before correcting to the level of $62.46 on August 16. ADM has mainly made higher lows and higher highs for the past three decades.
The demand side of the fundamental equation of food is a function of the increasing world population. According to the US Census Bureau, the world's population has grown from about six billion at the beginning of this century to more than 7.783 billion as of August 16, an increase of almost 30%.
Each year there are more mouths to feed; the world population will be higher in 2021 than in 2020 and will be higher again in 2022. The addressable market for ADM and the other ABCD companies continues to grow. Higher agricultural prices tend to increase profit margins for the farms. ADM should continue to beat earnings expectations. Archer Daniels Midland has earned an outstanding record for the past four quarters.
Source: Yahoo (NASDAQ:) Finance
As the chart illustrates, ADM reported second-quarter earnings of $1.33 per share, compared to consensus forecasts of $1.03. The second quarter of 2021 was the fourth consecutive quarter in which the company beat consensus expectations.
Chart: Investing.com
A survey of 15 analysts on Investing.com has an average price target of $67.54, with predictions ranging from $55 to $76 per share.
The Fed can 'transient' inflationary pressures keep calling. Nevertheless, the trend in agricultural commodity prices continues to rise as we move towards the 2021 crop in the US and Northern Hemisphere.
Rising agricultural commodity prices support higher levels for ADM stocks in the months and years ahead. Meanwhile, the stock offers shareholders an attractive dividend as they await capital appreciation.
