Read This Post - Minyanville

"Farmers have never been rolling in more money than they are right now," says Charlie Rentschler, who has a unique angle on the situation.

Rentschler, who escaped the East Coast for rural Indiana three decades ago, is probably the only Wall Street stock analyst who's also a farmer. He owns 200 acres in southeast Indiana, where he grows corn and winter wheat. (He also used to raise hogs, but no more.) Educated at Princeton and Harvard, a former McKinsey consultant, he analyzes the equities of agricultural companies for the Philadelphia investment firm Boenning & Scattergood. He's been known to use his Hoosier domains to field test (literally) the products of the companies he covers, mostly notably the bioengineered seeds of Monsanto (MON). He also uses the fertilizers of CF Industries (CF), and the farm equipment of Deere (DE).

Rentschler knows well that wealthy growers are good for the businesses of ag giants like Deere. As the maker of the iconic green machines gets ready to report fiscal second-quarter results before Wednesday's opening bell, he also knows that Deere will continue on the upswing it's experienced (along with the rest of the agriculture industry) since a series of weather-related supply shocks last year sparked a boom in farm commodities that has caused food-price inflation all over the world (and, indirectly, political uprisings in the Middle East).

Meanwhile, the boom has driven Deere shares, which trade in tandem with crop prices on the commodities markets, to all-time heights. Before a pullback in commodities that started at the beginning of May, shares of the Moline, Ill., company reached a peak of $99.80 on April 1. (They finished trading on Monday at $88.13.) Still, valuations haven't grown out of whack, according to analysts, since the company is also booking record profits.

According to the consensus estimate of 11 Wall Street analysts, Deere will report earnings of $2.06 a share for its fiscal second quarter ended in April, up from $1.58 a year earlier. Revenue will rise to $8.14 billion from $6.55 billion last year, analysts say. If the company hits both targets, it will mean growth of 16% on the bottom line and 24% on the top.

Renstchler thinks estimates for Deere -- both for the second quarter and for all of 2011 -- remain low. The Wall Street consensus target for Deere's fiscal 2011 calls for EPS of $6.23. "This company is typically conservative," Rentschler said in an interview. "And I guess I'd be looking for any signs of them saying that business is better than they expected." For him, a solid beat by Deere in the second quarter -- much like the first?-- wouldn't amount to much of a surprise.

Other analysts are equally bullish, but they point nevertheless to a few uncertainties. Chief among them is (as usual for agriculture) the weather, with heavy rains and massive Mississippi flooding?in the heart of the Midwestern corn belt that has kept soils too moist to plant, delaying the growing season and possibly hurting crop output this year. (Though farmers seem to have closed the gap of late, according to the latest reports on Agriculture.com.)

Whether this is good or bad for farmers is a tricky question, and one that will only affect the likes of Deere in 2012. It also depends on how severe any shortfall in crop output might be. "Farmers might be hurt if they can't produce a given amount of the commodity," said Michael Jaffe, an analyst who covers Deere for Standard& Poor's. "I'd like to hear from management how confident they are in their business remaining strong given what's been going on lately," he said.

Others are more sanguine. Any decline in output and yields wouldn't likely be enough to offset the consequent rise in prices that such supply constraints would cause in the commodities markets, the bulls say.

Charlie Rentschler noted that professional crop watchers at Iowa State University recently predicted average corn yields for U.S. farmers in 2011 of just 147 bushels per acre. That's much weaker than the "trend line," which has been calling for yields of about 160 bushels per acre.

Still, said Renstchler, "Those shortfalls in yield are typically made up for by increase in revenues. I think it's bullish overall for farmers."

When it comes to Deere, Rentschler's biggest concern is a longer term one. "The thing I would wonder: Does there come a point when Deere has satisfied demand for large equipment? It's not typical you buy a new tractor every year. Some guys do. But most hold out till the end of the warranty, and then flip it." Though farmers are as flush as they've ever been, he added, "buying sprees don't last forever."

Meanwhile, Deere's construction-gear, though a far smaller segment and dwarfed by rivals like Caterpillar (CAT), stands to benefit from any uptick in that still-downtrodden sector.

This entry was posted on Tuesday, May 17th, 2011 at 12:45 pm and is filed under MV News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Source: http://m.minyanville.com/mv-news/2011/05/17/deere-set-to-harvest-profits-from-farm-boom/

lupus symptoms kristin chenoweth why admission hawaiian airlines