Tuesday, October 12, 2010

Deere (NYSE:DE), CNH Global (NYSE:CNH), AGCO (Nasdaq:AGCO) and Lower Crop Yields

Agricultural stocks have been blazing as corn, soybean and wheat ending stocks were all lowered from prior estimates, with corn falling 21 percent and soybeans 26 percent below consensus. Wheat dropped 5 percent below former projections, 2 percent below consensus.

UBS (NYSE:UBS) said this about the changes, "USDA lowered its forecast of 2010/11 corn production to 12.664B bushels, from 13.160B bu, on lower corn yield. Also, USDA lowered its forecast of 2010/11 ending corn stocks to 902M bu, from 1.116B bu, 21% below the consensus forecast of 1.149B bu. USDA lowered its soybean ending stocks forecasts to 265M bu (26% below consensus of 356M), and lowered its wheat ending stocks forecast by 5% to 853M bu (2% below consensus of 870M). Given that forecasted corn and soybean ending stocks were well below consensus, we see the report as bullish for corn and soybean prices."

UBS kept a "Neutral" rating on Deere (NYSE:DE) and CNH Global (NYSE:CNH), while maintaining a "Sell" on AGCO (Nasdaq:AGCO), as farm as farm machinery makers go.

Lower yields should result in higher prices and margins, which could end up with farmers ordering more new machinery.

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