According to the OECD, global agriculture production is projected to increase by 1.1% per year during the next ten years. With that said, the report also estimates supply. Growth in poorer countries will be partially offset by an aging population in many developed countries. This is mainly driven by population growth. Moreover, the report expects global food consumption (mainly agricultural commodities) to rise by 1.4% per year over the next ten years. The report mentioned subdued global economic growth expectations of 2.7% per year over the next decade (IMF estimates, and below pre-pandemic levels), which is based on normalizing energy prices after 2022. This 363-page-long report provided me with some numbers that I missed in my research. With that said, on June 29, 2022, the OECD-FAO released its agriculture outlook for the 2022-2031 period. The chart below shows what the market is facing as important supplies of wheat and sunflower seeds are stuck in the country. Speaking of a supply shock, that's exactly what happened when Russia invaded Ukraine, causing its exports to drop off a cliff while it reduced fertilizer exports. Again, I'm mentioning both energy and agriculture crop prices in the same sentence as crop prices tend to trade just barely above production costs (outside of supply shocks).
It caused fertilizer production to become unprofitable and both energy and crop prices started to rise. This bull case further accelerated when Russia lowered natural gas exports to Europe in 4Q21 as it was preparing for war. After these lockdowns, demand for energy came back, restaurants reopened, China started to rebuild its hog herds after the African Swine Fever (on top of building inventories in general), and fertilizers became more expensive. The agriculture bull market is something I've covered since early 2020 when I turned bullish after COVID-related lockdowns had done a number on agriculture and energy prices. With all of this in mind, let's look at the details! The Agriculture Bull Case Moreover, I highlight the many benefits this stock brings to the table when it comes to dividend growth investing, which is why I own the stock in the first place.
It helps that Deere is not only the world's largest producer of agriculture equipment but also focused on next-gen technologies aiming to boost yields. In this article, I'm going to discuss why I added to Deere as the company is in a good spot to not only benefit from an attractive risk/reward given economic conditions but also because it will have to play a major role in a situation where long-term food supply is barely expected to keep up with demand. Since then, the stock is down roughly 14% as we're indeed on a very bumpy road thanks to various headwinds like slower economic growth expectations, volatile crop and energy prices, as well as an aggressive Federal Reserve eager to damage economic demand in order to control inflation. In May, I wrote an article titled "Deere's Bumpy Road To New Highs". It's time to talk about Deere & Company ( NYSE: DE).