Drought Realities May Depress Irrigation Sales

August 24, 2012 09:14 AM
 

Scant rainfall in most of America's cropland have farmers looking for ways to protect future crops. The price of grain continues to be high as harvest approaches, and irrigation companies are taking note. But the drought that has irrigation retailers licking their chops may be the thing that forces new sales to dry up. Irrigation companies Valmont Industries, Inc. (VMI) and Lindsay Corporation (LNN) have been riding a wave of good fortune since mid-summer but continuing hot dry weather has both stocks trending down.

 

High grain prices have the potential of putting big profits into the pockets of farmers...profits that often are rolled back into the farm. Profits this year may not meet expectations, however. While the price of grains is high, these elevated values are a response to continuing anxieties about yields.

Farmers may be able to get more per bushel for their crops this year than in recent years, but yields are expected to be off dramatically, thinning profit margins. Thinner margins on the farm mean farmers will have less to spend on heavy machinery updates. While irrigation may seem like a safe hedge against future drought conditions, the expense may just be too much.

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