[ Barry’s Note ]: The folks at REALVISION.COM are my kinda guys. I haven’t personally met them yet (that’s still in the works); however, I don’t have to have had that initial meet ‘n greet (the one I so often like to have before I endorse somebody’s quest and goods) to know a few things:
#1) Like me, they thoroughly understand reading most information from a majority of financial publishers is about as exciting as watching grass grow. Too much data, economic deep analysis or non-actionable commentary (where the dots aren’t connected for an overall awareness for you to have) can truly make a brain punch-drunk on boredom.
#2) They’re into finding and curating attention-grabbing stories and trends you can chew on (er, without spitting back out). It’s about the steak, not the sizzle. Just as we do with both our free newsletter (Money Monday) and premium research (M4 Insider), they appear to also have an internal marching order to FOCUS on research that you can actually use and profit from.
This is from the 11-3-17 issue of Real Vision’s free newsletter, 20/20. via their evergreen section titled, 6 Degrees of Connection
John Deere (DE) has looked unstoppable lately. The world’s largest manufacturer of farming equipment just closed a phenomenal third quarter in which sales grew 23% and profits grew 79%, crushing analyst estimates.
This continues Deere’s stellar year, in which it has increased sales by 11% – far surpassing management’s guidance that sales would be flat to slightly down in 2017.
After years of going practically nowhere, Deere’s stock has been on fire. From 2011 – 2016, it struggled in the 75 – 95 range. But late last year it blasted above 100 and hasn’t looked back. As we write, Deere stock trades for $146, an all-time high.
While Deere enjoys near-record profits, some of its customers are struggling to stay in business. Thanks to depressed crop prices, many farmers are barely breaking even.
The Rogers International Agriculture Index, which measures the prices of 20 different ag. commodities, sits within 5% of its 25 year lows.
For now, things aren’t quite as bad for farmers as they were during the 80s farming crisis.
But if crop prices don’t improve, we could be headed for another farming meltdown. In May, the National Farmers Union set up a “crisis” website to help farmers who can’t make ends meet. It includes information about suicide prevention, loans, and disaster relief.
Adjusted for inflation, many agricultural prices have never been cheaper.
Wheat, corn, and cocoa prices are all flirting with decade lows. Soybean oil, sugar, and coffee also remain historically cheap.
Logic dictates that cheap ag prices should help folks save money at the grocery store.
But that’s not what’s happened… at all.
Food inflation in the U.K. hit a four year high of 4.2% this month. In the U.S., the price of a Thanksgiving dinner actually declined about 1.5% from last year, thanks to cheap turkey prices. But this is an exception to the long-term trend.
The price of a typical thanksgiving dinner has increased by about 40% since 2004. Globally, food prices have risen 2.6% per year on average in the last two decades.
Why are food prices climbing when crop prices are dropping? One word: inflation.
Increases in the other costs of mass-producing food – transportation, taxes, machinery, salaries at large food companies like General Mills or Unilever – have more than offset the decline in crop prices.
Like all prices, the price of food is determined by supply and demand.
According to Harvard Business Review, global food demand is expected to rise between 59% and 98% by 2050. This should put further upward pressure on prices.
Of course, forecasting anything 33 years into the future is little better than a wild guess. Still, the trend in food consumption is clearly higher. In the last couple decades, billions of people worldwide have emerged from poverty.
In China and India in particular, hundreds of millions of people who used to eat primarily grains are now eating meat on a more regular basis.
Producing meat takes far more energy and resources than producing grains or plants. So, if people want to keep moving up the food chain, farmers will need to produce more food, and they’ll need to do so more efficiently.
Then again, many developed nations seem to suffer from the opposite problem:
too much food. According to Israeli Historian Yuval Noah Harari, the average human today is more likely to die from obesity than starvation.
In the U.S., the government deserves a lot of blame for the obesity epidemic.
For decades, the government’s “food pyramid” recommended eating all the pasta, grains, and bread you wanted, as long as you limit your fat intake. Newer research has shown this advice to be laughably wrong.
The Lancet medical journal recently published a major study that found low-fat diets were more closely linked with death from all causes. What’s more, people on low-fat diets were more likely to get heart disease or have a heart attack. In contrast, people on low-carb diets had significantly lower risk of heart problems.
Cheap, abundant food is making people fat and putting some farmers out of business.
But curiously, it doesn’t seem to be hurting John Deere’s business. As a result, the ratio of Deere’s stock price to many crop prices – like corn, soy, and wheat – are near 40 year highs.
Anyone interested in buying Deere stock should keep this in mind. Although Deere has thrived recently despite depressed crop prices, this can’t persist forever.
If crop prices don’t improve, Deere management will be faced with a tough question:
How do you sell tractors to broke farmers?
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