This column originally appeared on Real Money Pro at 1:55 p.m. EDT on April 25.
NEW YORK (
) -- Over the last few days we've heard from a number of agricultural-related plays. It's something I've kept my eyes and ears on ever since the drought we encountered last summer that sent the prices of certain commodities -- corn, wheat and soybeans -- substantially higher.
Sweetening the pot along the way, the U.S. Department of Agriculture shared that supplies of these commodities were challenged exiting 2012.
Worse yet, the National Oceanic and Atmospheric Administration called for a warm, dry spring, which it saw as leading to persistent drought conditions. At the time NOAS issued the view just several weeks ago, 51% of the continental U.S. was in moderate to exceptional drought, with key areas the central and western regions especially so.
With that as a backdrop, strong demand for seed and fertilizer was more than likely, and that's what we've heard this week from
To be fair, the first confirming signs were when
reported better-than-expected results a few weeks back. As I mentioned yesterday, DuPont's better-than-expected March results were largely due to strong sales at its agricultural business. This morning, both Dow and Potash reported better-than-expected March quarter results -- Dow due to strong demand among U.S. farmers for its seeds and pesticides, while Potash experienced a 78% increase year over year in sales volume due to improved global potash demand and record first-quarter nitrogen contributions.
Adding fuel to the fertilizer fire, Potash's earnings release shared that "(f)irst-quarter domestic shipments from North American potash producers rose 56 percent above those of the same period last year and dealers' need to secure additional product remained high as the quarter closed." One potential upside in the coming quarters was the removal of industry capacity owing to the fertilizer plant explosion in Texas last week.
Demand drivers look good, and that bodes well not only for the businesses and shares of those companies mentioned above, but also for
Now, that's a good if not great story on its own, but there could be more to it. The simple math of high commodity prices multiplied by greater acreage means good things for farm income.
Generally speaking, when farm incomes are high, farmers tend to replace ag equipment. That has me eyeing the shares of
and a few others.
Add to this the rebound in construction via the housing market and the prospects for Deere and CNH both look promising. One final note, per commentary from Deere on ag industry March retail sales, the sales and inventory figures paint the picture of an improving landscape for ag equipment sales.
While one month does not make a trend, a number of other supporting data points make these two companies worth looking at.