After nearly two years of trade tiff, the United States and China finally signed the phase one trade agreement on Jan 15 at Washington. Per the deal, the United States will roll back some tariffs and China will in return boost its purchase of U.S. goods and services.
This deal is a boon for American farmers as they are among the hardest hit by the trade war.
China to Purchase Additional Farm Products
The U.S.-China phase one deal includes China’s commitment to buy agricultural products, airplanes, pharmaceuticals, and oil and gas over the next two years, worth at least an additional $200 billion. This is markedly better than China’s baseline purchase of $186 billion in 2017 and would surely spur demand for American farm goods.
Moreover, China is also making changes to its agricultural policy and removing certain health standards that it had introduced to block a variety of American agricultural produce. Additionally, Chinese administration is relaxing licensing, inspection and registration rules that were trade barricades for America. These changes should provide easy access to meat, poultry, pet food, seafood, animal feed, baby formula, dairy and biotech products in the Chinese market.
Looking back, when the trade war started in 2018, agricultural exports to China dropped by about $21 billion. Even after slight easing in 2019, export levels remained far below the 2017 level of $19.5 billion. Now, with the agreement in play, China will have to purchase an additional $12.5 billion and $19.5 billion, respectively, of U.S. agricultural products from the 2017 baseline in 2020 and 2021.
Moreover, as negotiators from both countries continue talks to reach a second phase deal, the Chinese market should open up further and help exports grow.
5 Stocks to Buy
Given the positive development on the U.S.-China trade front, it is prudent to invest in American farm-based stocks. Hence, we have shortlisted five stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are poised to return well on investments.
Sanderson Farms, Inc. (NASDAQ:SAFM) an integrated poultry processing company, produces, processes, markets and distributes fresh, frozen, and prepared chicken products. The company’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Food - Meat Products industry’s projected earnings growth of 17.8%.
The Zacks Consensus Estimate for this Zacks Rank #1 company’s current-year earnings has been revised 47.8% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Bunge Limited (NYSE:BG) is a Zacks Rank #1 agribusiness and food company. The company operates in agribusiness, edible oil products, milling products, sugar and bioenergy, and fertilizer segments. The company’s expected earnings growth rate for the quarter ending February 2020 is more than 100% against the Zacks Agriculture - Products industry’s projected earnings decline of nearly 88%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.4% upward over the past 60 days.
The Andersons, Inc. (NASDAQ:ANDE) an agriculture company operating in the grain, ethanol, plant nutrient sectors. This Zacks Rank #1 company’s expected earnings growth rate for next year is 74.8% compared with the Zacks Agriculture - Productsindustry’s projected earnings growth of 37.6%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 64.6% upward over the past 60 days.
Pilgrim's Pride Corporation (NASDAQ:PPC) engages in the production, processing, marketing and distribution of fresh, frozen, and value-added chicken products. The company’s expected earnings growth rate for the current year is 35.9% compared with the Zacks Food - Meat Productsindustry’s projected earnings growth of 17.8%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.6% upward over the past 60 days. Pilgrim's Pride flaunts a Zacks Rank #1.
Cal-Maine Foods, Inc. (NASDAQ:CALM) produces, grades, packages, markets and distributes shell eggs (cage free, organic and brown eggs). The company’s expected earnings growth rate for the next year is more than 100% compared with the Zacks Agriculture - Productsindustry’s projected earnings growth of 37.6%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 27.8% upward over the past 60 days. Cal-Maine Foods carries a Zacks Rank #2.
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