Forget Crypto, Farming May be the Red-Hot Sector in 2021

Image: Collected
Investing in cryptocurrencies has its merits, but it isn't designed for the fainthearted, and it's really not an asset category most investors ought to be constructing a portfolio about. In addition, if you are searching for enjoyment, there are lots of other themes or sectors to purchase. One of these, surprisingly, is the farming sector and particularly Deere (NYSE:DE).

Let's examine why the agricultural machinery enterprise is a red hot-stock in 2021.

Deere's full-year guidance
Let's begin by looking in management's full-year sales direction. It reveals a company in full-on growth method. An industrial company rarely fires on all cylinders concurrently, but that's what's going on with Deere at this time. It all boils down to a combination of factors which can be lumped collectively in three broad groups that we'll discuss below.

End market outlook
Earliest, Deere's core agricultural industry is looking quite strong at this time. The chart below displays the recent strength in key crop rates like wheat, corn, and soybean. Moreover, farmers expect to take advantage of the increase significantly. For example, the U.S. Section of Agriculture forecasts that U.S. farm soybean income receipts will climb by $9.4 billion (24%) found in 2021, and corn income receipts are forecast to increase by $6.7 billion (14%).

Everything points to a good end-market environment for Deere's key crop farming clients -- notably China, which includes stepped up purchases of U.S. crops. It's a style found by Deere's President of Development and Accuracy Ag, Cory Reed, on the recent income call: "Furthermore to higher income receipts, U.S. buyer sentiment possesses benefited from better industry access during the last few quarters with elevated exports to China," he said. Furthermore, Reed explained, " Given the confident environmental backdrop, purchase activity is up drastically and our large ag order banking institutions are actually complete through the finish of the fiscal time."

Not only are the macro-environmental factors favorable, but Deere has many business and industry-specific factors in its favor as well. The pickup in end market segments comes at the right time as Deere evolves its accuracy agriculture or intelligent farming solutions.

The bottom line is, digital technologies accumulate and analyze real-time info to help farmers make, nurture, and harvest crops. Their addition helps improve the average value of Deere's agriculture gear, and the improved application sales imply an growth in profit margin. Certainly, Deere expects to attain a 7% upsurge in production and accuracy ag sales in 2021 from price realization by itself.

In addition, Deere's control believes that the demand cycle could extend beyond 2021 as a result of high age of the U.S. fleet of agriculture machinery, encouraging a multi-year replacement cycle to activate. Speaking on the wages call, Director of Investor Relations Josh Jepsen observed that the large agriculture fleet was the oldest it had been in the last 2 decades.

Putting this point into context, the prior boom in farm apparatus sales occurred in 2013 when, according to Jepsen, the fleet was "the youngest that it had been." As such, it's realistic to expect the current upcycle to have significantly more legs, so long as crop rates stay favorable.