Five Stocks to Dodge the Farm Bill "Milk Cliff"
How to win no matter what ...
Here in the stock-market newsletter business … I’m OG — which for purposes of our talk today, I’m going to define as “Old Guard.” I’m a market veteran … I’ve seen a lot … survived a lot … and accomplished a lot.
I’m OG … a holdout … a throwback.
I’m not angling for clicks. I don’t give a damn about “SEO.” I’m into big ideas, not hype. I actually care about my readers.
I’m an investor … not a trader. I’m looking to build wealth … not just pick off profits.
I walk my own path.
And not just with newsletters … and not just with stocks.
In my life, too.
For instance, I drink Red Bull … not Starbucks.
And I don’t drink pricey wines … or designer sake ... or “luxury spirits.”
I drink milk.
That’s right, dammit — milk.
And not “soy milk.” And not “oat milk.”
I drink Whole Milk. The Premium Octane. With the Red Label.
Vitamin D Whole Milk.
It tastes good. It’s not the inferior 2%. And it’s not that watery low fat (1%). It relaxes me at the end of the day. And you can mix in that great Nestle chocolate syrup (though, as a concession to my adulthood, I’ve switched to sugar free).
But here, too, I’m a throwback.
A holdout.
You see, U.S. milk consumption has dropped by almost half over the last half-century — from an average of 247 pounds per year when I was a kid back in 1975 to 134 pounds in 2021 (the most recent stats available).
Part of that drop is due to folks like my wife — a vegan, who drinks those “milk alternatives.”
(I’m a holdout … even in my own house.)
This isn’t a whimsical foray: There is a point to make.
A timely point.
About the Farm Bill. And a potential torpedo-to-the-economy known as the “Dairy Cliff.”
I’ll tell you what that is and what it means.
And I’ll give you FIVE stocks you can buy — today — for long-term investments … that you can win with … no matter how this plays out.
WASHINGTON’S “CLIFFHANGER” EPISODE
Another financial publisher asked for my “take” on the looming Farm Bill debate — and the so-called “Milk Cliff” or “Dairy Cliff” that we could reach (and plunge over) at the end of this year.
Without a Farm Bill, or an extension, U.S. commodity-support programs would ultimately revert to the older law (often referred to as “permanent” law) that, through the decades, is almost routinely suspended with each new agriculture (AG) pact.
Without congressional action, the clock strikes “12” at the end of this year. I won't get into all the mind-numbing “Who Struck John” specifics. They’re arcane. But without a new agreement, milk costs could double — a reality that will hammer the supply chain, disrupt the market and probably wipe out a lot of dairy farms across America.
If it comes to that, it’ll be another blow to an American AG sector that’s already been hit hard.
Two major U.S. dairy producers have filed for bankruptcy in recent years — Dean Foods in 2019 and Borden Dairy in 2020. The catalysts were similar: Competition from milk alternatives, escalating production costs and changing preferences like the ones I’ve seen in my own household.
As I told this other publisher, I’m watching this with an interest that’s both personal and professional.
The feared massive spike in dairy prices would be ruinous. Or we might not see it at all.
That’s why I don’t play headlines. I’m a Contrarian: I use out-of-whack inflection points as potential special-situation opportunities. And I’m a Wealth Builder: So I look for powerful long-term storylines.
Agriculture — a de facto commodities play that includes food, land and water — is a powerful storyline.
And it’s a storyline we’re watching here at Stock Picker’s Corner (SPC).
And I see three ways to play this (with five total stocks).
OPPORTUNITY NO. 1: OLD MCDONALD HAD A FARM
Farmers, as a group, are hard workers. Always have been.
(And thrifty, as this popular SPC income-stocks report underscores.)
So it’s no surprise that agricultural land, as measured by the U.S.-only NCREIF Farmland Index, has beat U.S. stocks and bonds on an annualized basis over the last 48 years.
There are about 900 million acres of farmland here in America right now. And you’re going to see what I like to call an “Econ 101” dynamic playing out: As older family farmers “age out” — and offspring decide not to take up the cause — farms will be sold. Some will continue on as farms. But some will be bulldozed into housing developments or for development as massive data center complexes. (I’ve seen both here in my home base in Maryland.)
Those “developments” will cut into the “supply” of farmland. And a drop in supply — everything else remaining equal — drives up prices.
And it doesn’t end there.
We’ve talked about the “private-equity tidal wave” — and the growing influence of these massive pools of capital. Well, that “tidal wave” is sweeping away farmland.
Big investors like Manulife Investment Management and Nuveen are gobbling up farmland. The number of properties owned by PE firms soared 231% between 2008 and 2023, NCREIF said.
Now you’re looking at the Econ 101 “double play” — the supply drops thanks to development and/or because it’s “locked up” in the gilt-edged fingers of private equity.
And there’s more.
As PE funds buy up farmland, “demand” is also increasing.
The simultaneous drop in supply and increase in demand leads to only one thing: Higher prices.
That’s not just theory — it’s fact.
Including here.
All that land the PE firms bought? While the amount of land held by firms has risen 231%, the value of that land has zoomed more than 800% — to hit $16.2 billion, NCREIF and Reuters reported.
Want to profit from that? Well, you can buy farmland directly. But that’s not liquid. And it’s costly.
Or you can make investments in publicly traded companies. Two to consider: Farmland Partners Inc. FPI 0.00%↑ (stock No. 1) and Gladstone Land Corp. LAND 0.00%↑ (stock No. 2).
FPI is trading at about $10.70 and carries a dividend yield of roughly 2.25%.
Gladstone is trading in the $13.60 range and has a very nice yield of about 4.15%.
These are both “foundational” stocks for us Wealth Builders. You buy shares in one or both — hold them for years, and “Accumulate” the stock on pullbacks.
OPPORTUNITY NO. 2: FLOWING PROFITS
As we just saw with the American water hack, water is an “at-risk” element of U.S. critical infrastructure. (We have a favorite water play in our Model Portfolio for our SPC Premium members that provides critical infrastructure and security to keep our water safe.)
Water is a crucial “ingredient” of farming … of agriculture … and of food production.
I get it. Water is boring — but essential. Folks feel like it's "free," but it carries tremendous cost (and tremendous risk). Did you know that only 0.5% of the water on Earth is usable (and accessible) freshwater?
And the supply of usable water will just keep dropping.
Extreme weather, continued development, population growth and security raise one important question: Will we be able to keep accessing the water we need?
Water is a must-have commodity. That makes water — and its proxies — a must-have investment for long-term investors like us.
One alluring play is water-solutions firm Pentair PLC PNR 0.00%↑(stock No. 3). I’ve covered Pentair — written about it and recommended the stock — since 2011, when it was trading at a split-adjusted price down in the $9.40-a-share range.
This London-based company is projected to grow earnings at an average annual pace of 13.7% over the next five years, meaning profits would double in a bit more than five.
Pentair is the “direct” water play.
But there’s also an “indirect” water opportunity in industrial heavyweight DuPont de Nemours Inc. DD 0.00%↑ (stock No. 4) that doubles as a special-situation investment.
DuPont is planning a corporate breakup that’ll be tax-free to shareholders and create standalone plays in advanced materials, semiconductors and water treatment — all businesses I like.
In fact — truth be told — I really like this deal: It’s a rare three-for-one breakup, creates companies in sectors with strong underlying storylines and will let each of these units go after business with fervor and focus. The company announced the breakup in May and aims to execute it by late next year or early 2026. At a recent price of $83, this is a stock — and an opportunity – that intrigues me a lot. And we just presented our SPC Premium members with our “Super 10”— a portfolio of 10 “special-situation stocks” to check out for further opportunities.
That brings us to our third opportunity and fifth stock — a farming “pure play.”
OPPORTUNITY NO. 3: PURE AGRICULTURE
One company I’m intrigued by here is Corteva Inc. CTVA 0.00%↑ (stock No. 5). The Indianapolis-based Corteva is pretty much a “pure play” on farming: It’s a global leader in optimized seeds, and it provides the software farmers can use to know when and where to plant their crops.
Back in September, Corteva said it took a $25 million equity stake in Pairwise, a Durham, N.C.-based health-and-agriculture company with strengths in CRISPR and gene-editing technology. With this new pact, the two companies hope to collaborate on gene editing for farmers.
The goal is “to accelerate the delivery of advanced gene editing solutions to farmers, ultimately benefitting both the environment and everyday consumers,” the two firms said in a statement. “Gene editing uses a plant's own DNA to make precise improvements, providing growers with another critical tool to keep pace with the challenges facing food production, including those presented by climate change.”
Base-level seeds are essentially commodities. But Corteva’s strategy is to differentiate its offerings — adding technology and perhaps even “branding” its offerings — which will let it charge higher prices.
I like that strategy. And it’s part of the reason Corteva’s five-year average earnings growth is a projected 12.8% — meaning profits would double in 5.6 years.
There you have it: A powerful, long-term storyline … and FIVE longer-term investments to build wealth … and avoid the near-term whipsawing that headline-playing traders succumb to that turns them into Wealth Killers.
Stock Recap
1️⃣Farmland Partners Inc. FPI 0.00%↑
2️⃣Gladstone Land Corp. LAND 0.00%↑
3️⃣Pentair PLC PNR 0.00%↑
4️⃣DuPont de Nemours Inc. DD 0.00%
5️⃣Corteva Inc. CTVA 0.00%↑
See you next time;
P.S. You can be a Wealth Builder … or a Wealth Killer … there’s no in-between. Get that long view. And check out the near-term outlook after the recent Fed meeting here. Finally, if you’re really ready to build your future, learn more about our SPC Premium Model Portfolio here.