Agricultural products feed more than 7.872 billion people in the world. As countries grapple with climate change, agricultural products are becoming important products for alternative and renewable energy sources.
There are four companies worldwide that dominate crop processing, services and many of the agricultural sectors. They are known as ABCD and include: Archer Daniels Midland (NYSE:ADM), Bonkey Group, Cargills PLC (CM:CARG), LDC.
In 2020 and 2021, the three major grain and oilseed markets achieved impressive growth. U.S. soybean futures rose 39.48 percent in 2020 and another 1.03 percent in 2021. Corn futures rose 24.82% and 22.57% in 2020 and 2021, respectively. CBOT's U.S. wheat futures rose 10.81 percent and 20.34 percent in 2020 and 2021, respectively. Fertilizers, energy, labour, transport and land prices are all rising, and agricultural prices are rising due to rising production costs and inflation.
At the same time, profits from agro-processors are soaring. Archer Daniels Midland (NYSE:ADM) hit a new high of more than $70 in early 2022, and the trend continues.
ADM hit an all-time high
ADM shares had an all-time high of $53.91 ahead of early 2021, a peak in December 2014. In March 2020, as the pandemic swept across the market across all asset classes, ADM shares fell to a low of $28.92 per share. Since then, ADM's share price has hit a record high and has continued to rise. The price has more than doubled since the March 2020 lows.
ADM long-term chart, Source: Barchart
As the chart shows, ADM reached its latest high of $71.55 on Jan. 14. Since the March 2020 lows, ADM has been constantly creating new highs.
Impressive gains and attractive dividends
At $71.55 per share, ADM's market capitalization is just over $40 billion. The company pays shareholders a dividend of $1.48 a year, or about a yield of about 2.22 percent. And its earnings have been higher than analysts' expectations.
ADM earnings, source: Yahoo Finance
The chart above shows that ADM's earnings for four consecutive quarters have been higher than generally expected by the market. The company will release its fourth-quarter 2021 earnings report before the market opens on Jan. 25, and analysts expect earnings per share to be $1.32.
Investing.com survey of 15 analysts showed the company's share price target ranged from $63 to $80, with an average of $70.64.
ADM Consensus Rating, Source: Investing.com
The general expectation of most analysts surveyed for the stock was to "outperform the broader market."
Inflation is rising
Last week, the U.S. consumer price index (CPI) for 2021 rose 7 percent, the highest level in 40 years. The core CPI, which excludes food and energy, rose 5.5 percent, well above the Fed's average target of 2 percent. The latest Producer Price Index (PPI), which measures wholesale prices of goods and services, rose nearly 10 percent in 2021.
The Fed has already begun to move to respond to rising inflationary pressures by accelerating quantitative easing, laying the groundwork for a rate hike at the March FOMC meeting.
Food prices are rising in 2020 and becoming more expensive in 2021. Soybean, corn and wheat prices rose to multi-year highs last year. Oilseed and grain futures have seen double-digit percentage gains over the past two years, with soybean, corn and wheat futures rising in recent months to their highest prices since 2012 in 2021.
Most other food prices also saw double-digit increases during this period. Rising agricultural prices are good news for ADM.
Biofuels open up new growth points for ADM
ADM was founded in 1902 and is headquartered in Chicago, the center of the agricultural market.
The government's desire to address climate change through alternative and renewable energy sources has raised ADM's business prospects. The company's website reads:
"Today, biofuels such as ethanol and biodiesel are the main alternative fuels available to consumers, and ADM is the main producer of both fuels."
A bull market in agricultural products, rising inflation, and measures to combat climate change have created the basis for a bull market for ADM, and the company's profits should continue to soar.
Global industry leader
ADM is an American company, but its reach has made it a global leader in agriculture, leading the global agricultural sector alongside Archer Daniels Midland (NYSE:ADM), Bongkee Group, Cargill and Louis Dafford.
As of Jan. 18, ADM's market capitalization was $40 billion, nearly three times BG's $13.87 billion market cap.
Rising inflationary pressures should continue to support ADM's profits and could push up share prices. ADM outperformed other companies in an inflationary environment.