Strong feed demand in China, and globally is pushing farmers to produce more food. In addition, strong food price inflation as highlighted in the latest Consumer Price Index (CPI) data released on September 13, is an additional motivator for farmers to till more land.
Accordingly, strong growth has been noted in large agricultural tractor sales, with inventories stabilizing after the Covid scare. In both the US and Canada, the combined tractor sales jumped by 16.8%, according to data shared by Baird.
Furthermore, the US Department of Agriculture is seeing a 20% increase in corn exports, roughly $1.6 billion worth, compared to last year. With combine harvester sales leading the way, rising 27.3% year-on-year (YoY), followed by row crop tractors, increasing sales by 14.3% YoY.
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With all of the above, Deere & Company (NYSE: DE) could benefit from the trends as billionaire value investor Mario Gabelli, chairman, and CEO of Gabelli Asset Management noted there is confusion regarding the new proposed 15% tax indicating that the agricultural sector could benefit due to a $535 billion government stimulus, among other things.
DE chart and analysis
With DE being one of the better-performing stocks in the Machinery industry, outperforming 87% of 147 stocks in the same industry, the long and short-term trends are both positive.
In the last month, DE has been trading in the $353.05 to $392.93 range, bouncing between the daily moving averages. Technical analysis indicates a support zone from $361.05 to $362.21, and a resistance zone from $366.50 to $370.57.
TipRanks analysts rate the shares a ‘moderate buy,’ with the average price in the next 12 months reaching $407.50, 12.17% higher than the current trading price of $363.30.
Furthermore, Deere is looking to increase its revenue through software sales; according to a recent PR on its site, they’re looking to create 10% of revenue from the software side as its farming equipment becomes more tech-heavy.
If oil and gas prices remain volatile, industrials as a niche may do well, also, raging inflation will give food producers more cushion to earn better returns. Therefore, firms like Deere that produce essential machinery that helps in the creation of food should do well both short and long term.
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