Today’s consumer spending report from the government indicated the majority of the rise in inflation and retail sales is stemming from high food and oil prices. While investors appear confounded over the volatility and capricious patterns of oil pricing, there seems to be some certainty about the future of food prices: they’re going up. Food prices at the grocery store continue to rise as food manufacturers pass on commodity price increases. Corn, after a brief dip earlier in the week has stabilized alongside other grains. The panic may have been swept over by the logic that over rides the short term up and down of the market. Population growth and a widening middle-class in emerging nations like China and India increase the demand for food beyond what we’re prepared for. With supply shortages, prices will go up and investors will make more money. Meanwhile, farmers will do their best to attempt to have larger harvests, driving up share prices in ancillary industries like equipment manufacturers and fertilizer companies.
LSB Industries (NYSE: LXU) A top manufacturer of agricultural chemicals and climate control pumps and valves, LSB Industries recorded record earnings for Q1. The company is expected to continue to profit from from farmers desire to amplify current yields yield. EPS is expected to increase 742 percent according to Seeking Alpha with sales climbing 142 percent for the next quarter. Last quarter, its operating income was $34.0 million compared with $4.4 million while net income was $20.9 million compared to $1.7 million. Net income applicable to common shareholders was $20.6 million compared to $1.4 million while diluted earnings per common share were $.90 compared to $.07. Agricultural sales for the Chemical Business, the largest driver of growth in the period were $51.1 million compared to $24.5 million for the same period a year earlier. If the trend continues as analysts anticipate, shares of LSB have the potential to push significantly higher in the coming months and years.
Potash (NYSE: POT) A leading fertilizer company, Potash could be anticipated to benefit from augmented plantings and the international agricultural industry’s attempts to enhance current yields. The greater demand for food globally has directly increased sales for Potash. Management announced expectations for global demand for their fertilizer to reach 55 million tons. According to Seeking Alpha, Potash has expected EPS growth of 61 percent and sales growth of 29 percent. The company’s shipment numbers have been growing at a staggering pace for the year.
Archer Daniels Midland (NYSE: ADM): As of last month, Archer Daniels Midland has year-to-date gains of 22.07 percent and the grain producer is looking to position itself for more of them. The company announced its intentions to tripe its storage capacities to accommodate the rising global demand for grain, which Wall Street analysts foresee will maintain itself for the next five years. The grain losses earlier in the week may be a signal for investors who are looking to get into this area of agricultural stocks. The slightly lower prices recently mean larger margins later if the prices are able to meet market expectations for the future.
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