Mitchell Clark writes: Farmers really are the best customers.

Monsanto Company (NYSE/MON) has become more than a 10-bagger since listing on the stock market. Its performance over the last year has been good, and the company just beat the Street with its quarterly earnings results.

I suspect that many farmers have a kind of love/hate relationship with Monsanto. The company’s “Roundup Ready” products work, but it’s the way the company has litigated some farmers that has probably turned off a number of customers.

The company’s earnings results were good. Revenues in its latest quarter grew 15% to $5.5 billion. Global corn sales were particularly strong. Earnings came in at $1.5 billion, up 22% from comparable earnings of $1.2 billion.

Monsanto’s 10-year stock market performance has been outstanding, and I think investors can attribute a lot of weight to this—especially those who might be considering investments related to agriculture. Monsanto’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

Wall Street has been consistently increasing Monsanto’s fiscal 2013 and fiscal 2014 earnings estimates.

Imagine this business if you have the loyalty of a farmer. The vast majority of farmers are in business for the very long term. They’re not going away tomorrow.

Barriers to entry are high because of seed development and the years it takes to develop proprietary technologies.

Monsanto is in a very good position right now, as the commodity price cycle favors agriculture. The prospect for continued strength in both revenues and earnings growth this year is very good, as the U.S. corn crop should reach an all-time record high.

Monsanto’s stock market performance has been pretty darn solid, especially considering the massive stock market retrenchment that took place during the financial crisis and subsequent recession. Monsanto has a lot of free cash flow—too much in fact—and the company could really do with a dividend boost. This would probably result in a big stock market jump.

Monsanto boosted its fiscal earnings outlook, and the company’s herbicide business is growing by leaps and bounds.

What this company’s operations are saying is very significant. They’re saying that agriculture and cash cropping got a big boost last year, and they should be solid going forward.

I am increasingly worried about the stock market, not because of earnings results, but because it has climbed so fast in such a short period of time. I’m also worrying more and more about sovereign debt and the never-ending cycle of borrowing to keep things going.

This is why I’m very fond of agriculture as a part of a balanced stock market portfolio. This sector has stability in terms of earnings growth; but it also has stability if currencies and financial markets fall apart.

And it’s a way to invest in something domestic that’s real, that isn’t going away. Demand for food, ethanol, and vegetable oil is not going to fall. Monsanto’s business prospects remain excellent.

Source: http://www.dailygainsletter.com/stock-market/why-farmers-are-key-to-the-commodity-price-cycle/577/

Bio: The Daily Gains Letter provides independent and unbiased research. Our goal at the Daily Gains Letter is to provide our readership with personal wealth guidance, money management and investment strategies to help our readers make more money from their investments.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.