Riots in Algeria over the cost of sugar and wheat. Mexico’s government buys corn futures to hedge against rising tortilla prices. Indian Prime Minister Manmohan Singh forced to arrange onion imports from traditional enemy Pakistan. Chinese Premier Wen Jiabao promises shoppers in a supermarket in Inner Mongolia that the government will control food price inflation running at better than 11% annually.

Sure sounds like we’re headed back to the bad old days of 2008 when soaring food prices sparked food riots across the globe. According to the food price index kept by the Food and Agriculture Organization of the United Nations, the price of traded food staples such as wheat, corn, and rice climbed 26% from June to November and are near the historic highs set in 2008.

What the world is seeing isn’t an anomaly in my opinion. The peaks of 2008 and 2010 aren’t unusual events caused by an unusual coincidence of unusual bad weather and some terrible (but usual) government decisions to hoard key grains behind export bans. The peaks are indeed extreme but the long-term trend in food prices is upward and it’s the dip from the peaks of 2008 while global consumers were tightening their belts in response to the Great Recession that’s actually the anomaly.

Absent a return to global recession I think the upward trend in food prices is guaranteed to continue. The forces pushing prices upward are just too simple and massive. And the policy responses from governments that might temper the trend are just too limited. If you’re a long-term investor, the upward trend in food prices is one of the safest trends that you can invest in for the long term.

It’s also one of the most frustrating because it is so hard to find good stocks positioned to take advantage of rising food prices. Read more

Buy Lindsay (LNN)

Ah, if Lindsay (LNN) was just a pure play irrigation company.

Then Lindsay wouldn’t have missed fiscal first quarter earnings by 15 cents a share yesterday, December 22.

But, on the other hand, then investors wouldn’t be able to pick up one of the few global irrigation plays on yesterday’s 5.2% drop. (Lindsay was one of the 10 stocks I recommended for 2011 in my post http://jubakpicks.com/2010/12/21/10-stocks-picks-for-profiting-in-a-volatile-2011/ )

Lindsay runs two businesses. First, there’s the infrastructure business. The major products here are moveable barriers for traffic management during construction, crash cushions, and road marking and safety devices. Revenue from this business came to $29.2 million in the quarter that ended in November. That’s roughly 33% of Lindsay’s revenue for the period. Second, there’s the irrigation business. Major products here are self-propelled center pivot and laterally moving irrigation systems. Revenue for this business came to $60 million in the quarter.

The first quarter miss was attributable almost totally to the infrastructure business. Revenues there fell by 11% on lower sales of Lindsay’s QuickChange Moveable Barrier traffic systems. Since these barrier systems carry higher margins, the drop in sales of QuickChange systems, resulted in lower margins for the infrastructure segment. That dropped gross margins for the entire company to 27.2% from 30%.

Revenue for the irrigation business climbed by 13% and margins were flat on that revenue. That’s good performance from a business that sees orders spike in the late winter and early spring as farmers order equipment for the new growing season. Read more

Update Deere (DE)

Valuing a cyclical stock such as Deere (DE)—which reports fourth quarter fiscal 2010 earnings on Wednesday, November 24–is always difficult. You have to figure out where the company is in the revenue cycle from peak to trough and back again. And you have to figure out how long the cycle will last.

In Deere’s case, the Wall Street projection is that the company is about to hit the top of the cycle. Earnings growth, according to Wall Street, will hit an astonishing 311% in the fiscal year that ended in October 2010 and then head downward, as the cycle peaks to 35% in the quarter that ends in January 2011 on its way to just 16% growth for the fiscal year that ends in October 2011.

That projected peak seems early to me, considering that the company’s business really only bottomed in late 2008 through late 2009, and considering that farm prices seem to be headed higher, not lower, for the foreseeable future. According to the Association of Equipment Manufacturers, sales of four-wheel drive tractors were up 83% in October 2010 from October 2009 and sales of large row-crop tractors climbed by 54%.

That sounds like acceleration rather than a peak to me. Read more

The fall out continues from the U.S. Department of Agriculture’s shocking turnaround on the size of this year’s corn crop.

On Friday October 8 the USDA completely reversed its optimistic September 30 projection of corn production for the year and slashed its estimate of end of the year stocks. The agency lowered its projections for end of the year corn inventory to just 902 million bushels, a 19% drop from its September 30 estimate and a huge drop from the 2009-2010 end of the year inventory of 1.6708 billion bushels. (For more on the corn harvest and the USDA’s projections, see my  post (http://jubakpicks.com/2010/10/12/whoops-usda-has-to-eat-its-optimistic-projections-from-september-30-on-corn-crop-and-sets-off-commodity-surge/ )

Not surprisingly corn prices are soaring. They rose another 8.5% on the Chicago Board of Trade on Monday, October 11.

But the effects of higher corn prices are still rippling out across the economy. Meat prices, for example, are up more than 15% this year to their highest level since the 1980s, but they’ve lagged the increase in corn prices. And they’re almost certain to head even higher. Read more

Whoops! USDA has to eat its optimistic projections from September 30 on corn crop and sets off commodity surge

It looks like the U.S. Department of Agriculture has been completely wrong-footed by the U.S. corn crop. And that has sent agriculture stocks soaring today, October 8.

Just a few months ago the USDA was projecting a record crop. Just a couple of weeks ago on September 30, the agency projected corn production of 13.16 billion bushels on a near record yield of 162.5 bushels an acre.

On October 8 shockingly lower projections completely reversed the shocking higher estimates issued by the USDA on September 30.

The USDA is now projecting final corn production of 12.664 billion bushels and a yield of 155.8 bushels per acre. Analysts have been arguing that September’s USDA projections were too high given conditions in the field, but even those analysts were projecting a yield of 159.9 bushels per acre. Last year set a record yield at 164.7 bushels an acre.

The revisions to the supply/demand picture were big enough to move the commodity and stock markets. The USDA is now calling for an end of the year corn inventory of just 902 million bushels. That more than 19% below the September estimate of 1.116 billion bushels for year-end inventory. Ending corn inventory for 2009-2010 stood at 1.6708 billion bushels.

Stocks moving up on the news include Mosaic (MOS) and Agrium (AGU) in the fertilizer group, seed companies Monsanto (MON) and Syngenta (SYT) and farm equipment makers Deere (DE) and AGCO (AGCO).