Global Courant 2023-05-20 04:06:19
CEO Eric Hansotia of farm equipment manufacturer Agco told CNBC’s Jim Cramer Friday that high grain prices — and high food costs — will persist even if Russia’s invasion of Ukraine ends tomorrow.
Both Russia and Ukraine serve as major global grain suppliers, with the latter often referred to as the “breadbasket of Europe”, and when war broke out in February 2022, the global food supply chain was thrown into turmoil.
Sitting down with “Mad Money” last March, Hansotia told Cramer “13% of global calories came from manufacturing” as the borders between Russia and Ukraine were closed.
Coupled with climate problems — namely droughts in Europe and North America — the food supply chain disaster caused by the Russian invasion is unlikely to go away any time soon, Hansotia said.
“Even if (the war) were to end tomorrow, there is a long-term decline in that area’s ability to grow crops, and so that will happen to the market for quite some time,” he said.
Despite problems with the grain supply chain, Agco, which sells high-priced farm equipment such as tractors and combine harvesters, recently reported a successful quarter. The company significantly raised its full-year forecast and net sales reached $3.3 billion, beating the consensus estimate of $3.16 billion.
Still, Agco’s revenue is down about 15% from its post-quarter high.
But Hansotia reaffirmed strong demand for Agco’s products well into the next year, pointing to the declining stock-to-use ratio of grain coupled with falling production costs for farmers.
“The stock-to-use ratio — essentially how much grain is in the market — has been declining for six years in a row,” Hansotia told Cramer.
“That’s one of the best indicators of how much demand there’s going to be, that’s a buoy for grain prices. At the same time, input costs for our farmers, diesel, fertilizer and other things are going down, actually. , and these are costs that could go down for next year be detained.”
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