Lindsay Corporation (LNN), a road infrastructure products and agricultural irrigation company, sits at the intersection of two hot sectors: infrastructure and agriculture. Eighty-three percent of the company’s revenue is generated from the center pivot irrigation systems farmers use to water their crops so the focus of this note is on agriculture.

In its 10-Q for the quarter ending February 28, 2021, Lindsay provides a seemingly counterintuitive snapshot that may not be fully reflected in current market prices in the agriculture space. In the filing, Lindsay quantifies the rise in commodity prices underpinning the rally in ag stocks:

“As of February 2021, U.S. corn prices have increased approximately 43 percent and U.S. soybean prices have increased approximately 54 percent from February 2020. The increase in these commodity prices resulted from lower production levels caused by unfavorable weather conditions coupled with higher demand coming primarily from an increase in corn and soybean exports to China.”

However, Lindsay warns the sharp rise in commodities isn’t going to translate into a year-over-year increase in farm incomes. In fact, Lindsay says farm incomes are expected to fall relatively significantly due to the a substantial increase in aid the prior year:


“As of February 2021, the U.S. Department of Agriculture (the “USDA”) estimated U.S. 2021 net farm income to be $111.4 billion, a decrease of eight percent from the USDA’s estimated U.S. 2020 net farm income of $121.1 billion. The decrease is primarily related to a reduction in 2021 in Federal government direct farm program payments from the Coronavirus Food Assistance Program (“CFAP”) that increased government support in 2020. Federal government direct farm program payments are estimated to return to more historical levels during 2021. A projected increase in cash receipts from crops and livestock is expected to offset a portion of the decrease in government support payments.”

The cash receipts Lindsay cites as an offset may already be spent though and in ways that make little economic sense. Not only is farm ground selling for record prices in the Midwest, rents have jumped 50% to $300 per acre in some regions.

The surge in commodities cuts both ways. The price of fuel, fertilizer, and steel used in the irrigation systems Lindsay sells will pressure farm margins. Even the largest farmers— 75% of all cropland is controlled by 13% of farmers — who can pay up for ground to fold into existing acreage may not be as cash flush as the market currently expects.