The Rising Influence of Rising Affluence

[DewDiligence]

Barron’s excerpt on ag-machinery vendors DE/CNH/AGCO:

http://online.barrons.com/article/SB50001424052970204076004575616732996960188.html

You probably want to look at companies whose products are absolutely necessary—the farm-equipment makers, because there are only a few in the world. That includes Deere [DE], CNH Global [CNH] and Agco [AGCO]. They all have a big presence in the U.S., and they are absolutely crucial to expanding grain production. They distribute their products around the world, and they form almost an oligopoly. These are great investments, but most people just see them as cyclicals.

…what has changed is that, in most years, farmers now are really making more money consistently than they did before. There is now a payoff for being able to produce more from your farm [i.e. the US government is no longer paying farmers *not* to produce]. So, it's important for farmers to get these high-end machines that companies like Deere produce. Some of these machines are technological wonders.

By the way, agricultural productivity in the United States in the past 30 years has risen almost as fast as productivity in industrial products. People think of farmers as pretty dull people, but they've really improved the way they do business. That process must go forward or we will face starvation. So these are companies we can feel good about, and they remain cheap.

The article in #msg-51844339, about the scarcity of water for crops, makes a good companion read.

p.s. DE reports earnings for the fiscal year ended 10/31/10 this Wednesday (Nov 24).