You probably have not even registered it, but food prices have risen sharply since late last year. One big reason why this is going mostly unnoticed is that economists, and thus the media, like to report inflation with food and energy stripped out. According to Jefferies, “Almost unnoticed, broad food and agricultural prices have climbed vertically”. So the question is who will benefit, and luckily that is quite clear. Firstly, fertilizer companies tend to do well when food prices are high and are uncorrelated to other asset classes. And secondly, agricultural machinery is a big winner. The sector is already experiencing exceptional supply tightness, which is bullish for pricing. According to Barron’s “large tractor prices up roughly 20% year-over-year and small tractors up about 50%, on the back of significantly tighter inventories”.
FINSUM: Deere and AgCo seem like quite good buys given this backdrop.