No matter what crisis occurs people will still need to eat. Therefore, many think of investing in farming stocks as a recession-proof game plan. There are plenty of publicly traded companies doing business in the agricultural sector. These companies include those working in one of the farm-supporting industries and those directly producing and growing crops.
Farming stocks and Agricultural Diversification
The agriculture industry is rapidly changing. Today’s agricultural sector is a huge business and is brushing on plenty of other market industries. Considering agribusiness is a vital operation that requires high adaptability to external effects, it has created agricultural titan-like companies. Many of these companies have cash flows, dividends, and healthy profits and are a great opportunity for investors. That being so, there are numerous ways investors can get in on the action of buying farming stocks.
Energy costs of agriculture are increasing while food prices are getting lower. This means the farmer’s income is decreasing. To avoid bankruptcy and ensure a steady influx of money, farmers are diversifying their businesses.
The UK government defines agricultural diversification as: ‘adding business activities to traditional farming methods to develop new sources of income’. Diversification has many forms. Farmers choose how to diversify based on their geographical location, farm’s physical resources, consumer demand, and farmer’s skillset. Most popular forms of branching out include organizing on-farm activities such as festivals, experience days, weddings, special occasions, camping, and bed & breakfast. Also very popular are breweries, distilleries, farm shops, and cafes. Some farmers decide to diversify with flower farming and alternative crops such as energy crops and industrial fiber crops. Specialty livestock like ostriches, alpacas, llamas, and deers are very popular forms of bringing in additional income as well.
Before taking the plunge and diving into one of the above-mentioned businesses farmers should conduct a thorough analysis of the venture. Some of the most important questions that should be answered before diversification are: ‘How much time will it take?’, ‘How would you finance it?’, ‘Do you have first-hand information (resources, skills, and market conditions) from other farmers who have taken the same road?’, ‘How will it be financed?’, ‘Will it be profitable?’, ‘How to market it?’ and ‘What are legal requirements?’.
Another reason for agricultural diversification is climate change. The patterns of growing temperature variability and reduced rain flow are pushing farmers into crop diversification. Agricultural systems diversification lowers the vulnerability of the production system to extreme external events and climate changes. Which in turn protects agricultural industry and rural farmers.
How Covid19 affected the agriculture industry
Covid19 impacted all industries across the world. The agricultural industry wasn’t exempt either. Covid19 created a gap between the delivery of agricultural products and trading prices. It harmed the health of farmers and caused a workforce shortage all the while increasing production costs because of efforts to comply with government-imposed precautionary norms. Additionally, it disrupted the agro logistics and supply chain.
Countries with economies largely depending on agriculture were impacted the highest. Bangladesh, India, Vietnam were affected the most as agricultural production accounts for 12-16% of their GDP. The Indian government imposed a three-week-long lockdown that collided with the harvest time of mustard, wheat, pulses, and other crops. Despite the relief packages both before and after harvest operations were endangered by the lockdown due to the lack of proper logistical support, workers returning to their hometowns, and other consequences of the lockdown.
The agricultural sector of the developed nations was affected by the Covid as well. In the USA, rural roads are used to transport most of the agricultural produce. As of Covid, 13% of roads were not suitable for use because of a lack of monetary support for road maintenance. 21% of the roads are in mediocre condition while 66% are in good condition. The driving force of the agricultural sector remains unprotected from the virus. The Midwest US farmers are on average over 65 years old and therefore more at risk from the virus. This also means all government restriction measures apply to this segment.
Even though the impact of Covid19 on the agricultural sector was detrimental, countries around the world are looking to revive the agricultural sector. However, while still applying the coronavirus precaution measures.
Investing in farming stocks: Opportunities to consider
With the world population on the rise, it will be up to farming to act as a crucial player in creating sustainable global societies. Buying a farm isn’t a possibility for every investor. It requires a large amount of time, energy, and skill to run a farm. Also, it asks for a substantial capital commitment. Luckily, there are other ways an investor can put money into farming stocks without purchasing a farm. There are six big opportunities for investing in farming stocks. Here is an overview of each of the opportunities:
Pesticides are substances that protect plants from pests. The most common pests are insects, weeds, and fungi. Pesticides have encountered difficult market conditions over the past years. A tide of consolidations and improvement of market conditions expectations can act as a game-changer for pesticides. The change might be more evident during the 2020s.
To become a leader in the agri industry, Bayer, a German pharmaceutical company, purchased Monsanto, an American agricultural biotechnology corporation in 2018. During 2018 and 2019, a series of transactions happened where FMC (Food Machinery and Chemical Corporation) finalized its lithium segment, sold its nutrition segment, and bought assets from DuPont, an American chemical company. This led to them becoming one of the largest agricultural chemical companies. Corteva Agriscience came to life when formally merged DuPont and Dow Chemical split into three companies. One of these companies became Corteva Agriscience.
For investors looking to put money into pesticide stocks, it will be beneficial to take a look at the trio Corteva Agriscience, Bayer, and FMC.
The big 3 nutrients in the sphere of fertilizers are potash, nitrogen, and phosphate. Phosphate and potash are mined while synthetic chemistry is used to create nitrogen. Demand for these nutrients is not constant. It heavily depends on the health of the harvest season. The crops that dictate the demand for these nutrients are soybean, corn, and wheat. Countries with poor soil quality have a higher demand for fertilizers. Brazil and China to name a few. Even though this market has been difficult to grasp in the last few years, fertilizers remain a crucial part of the food industry.
The world’s largest fertilizer manufacturer is Nutrien. This Canadian company is also the biggest potash producer, generating six million metric tons of potash yearly. Additionally, Nutrien has the lowest production cost of nitrogen among its competitors. During the first half of 2020, this company brought $1.6 billion. Nutrien strives to sell directly to farmers and acquire higher-margin sales. For this reason, the company is majorly investing in the expansion of its retail segment.
Pandemic has brought many lifestyle changes. Staying at home means being restricted to one’s living space and having less opportunity to go into nature. People started cherishing their backyards and moving away from cities and into smaller towns and villages where there is more plant life. A newly sparked interest in gardening and outdoor care led to the sudden rise of certain stocks. One of such profiteers is Scotts Miracle-Gro. This American multinational corporation produces lawn care products and sells them to individual consumers and farms as well. The company is expecting gains in fiscal 2021 as it grew 31% in fiscal 2020.
By putting money in Scotts Miracle-Gro investors gain exposure to the cannabis industry. This high growth opportunity is made available through the company’s segment called Hawthorne.
The demand for plant-based meat is on the rise. Companies and startups like Impossible Foods and Beyond Meat are pushing hard to create animal-free meat that would satisfy consumers in texture, taste, price, and nutritious values. To do that they partner with big agricultural companies like Tyson Foods, Archer Daniels Midland, and Bunge.
Bunge is one of the planet’s biggest soybean manufacturers. A leading source of plant-based meat is soy protein. This puts Bunge in a leading position in the market. Tyson Foods uses its knowledge of the animal-free meat industry to assist startups in positioning their products on the market. In addition, Tyson Foods invests in equity when possible and has its plant-based food brands.
Apart from traditional stocks, there are another few that should be considered. One such company is Precision BioSciences. Their focus is on creating a next-generation plant-based protein source in the form of high-protein chickpeas. Beyond Meat is also considering turning to chickpeas if it proves to be satisfactory. Currently, they are still using pea protein.
Even though chemical-based fertilizers are still prevalent in the market, investors should keep an eye on up-and-coming technologies. New technologies that don’t require chemicals are in production and might just dictate the market in the years to come. They are called biologicals. Biologicals are treatments of crops or soils and are microbe-based. The aim of producing them is to reduce the need for chemical-based fertilizers, increase yields and help plants defend themselves from pests.
How do biological nutrients work? The idea is to wrap seeds with natural soil microbes. Once the plant starts rising from the seed, the microbes would feed the plants starting from the roots. The non-chemical approach to fertilizers is more sustainable and overall better for the planet.
The main companies in developing biological nutrients are FMC, Bayer, and Corteva Agriscience. Bayer is currently leading the market with a biological brand that came to life through the partnership with Novozymes.
Digital agriculture means using agriculture technology to provide the agricultural industry with information and tools to increase productivity and make smarter decisions. Digital agriculture came to life following the advancements in mobile computing, satellite imagery, and processing large amounts of data. Even though this is considered to be a new occurrence in the agriculture industry, in the early 2020 hundreds of millions of acres were covered already.
How does it work? Farmers are paying annual or monthly subscriptions. These subscriptions allow them to access information specialized for their farm. They can get their hands on predictive and historical data. This data will help them answer questions such as when to fertilize this season, how many seeds should be placed in each row or will the corn rootworms behave better than usual or worse.
The leading digital agriculture platforms are Corteva Agriscience, Bayer, and Nutrien. Digital platforms help farmers increase income, improve food production efficiency and create opportunities for selling for big retail brands. The top 3 leading companies also benefit from using their existing relationships with farmers to maximum advantage.
Not all agricultural applications out there are great investment opportunities. However, it doesn’t mean investors should not keep an eye on them in the years to come.
Specialty agriculture can be spotted in the businesses producing fragrances and flavors. Even though this is not where specialty agriculture is mostly present, investors should put it on their watch list. Vertical farming is a way of growing crops by using shelves and layers to save space. This idea is often puffed up but in reality, it is not practical due to the prerequisite needed for it to work. Currently, individual investors are still unable to invest in vertical farming. The future of vertical farming lies in deciding how to scale production and reduce costs.
A crucial component in agriculture is water. Consumption of water will rise in the future. This is good news for the companies in the water desalination and treatment business. Such companies are Consolidated Water and Xylem. They are developing solutions for water sustainability.
Currently, dealing in agricultural futures is difficult for retail investors. Some specialist instruments are available which provide direct exposure to agricultural futures via ETPs (exchange-traded products).
Top 10 farming stocks to buy
Considering that agriculture is essential for the sustainability of humans, it is no wonder this industry will always be relevant and able to overcome external difficulties. Thanks to the diversification, the agriculture industry today is not focused only on farming, grains, and livestock but also on automation, pesticides, fertilizers, new farming technologies, and producing new types of seeds able to survive in harsh environments. This also means investors have opportunities to expand their portfolios.
The following list presents the top ten agricultural stocks.
Deere & Company
According to Insider Monkey, Deere & Company is the most popular stock among the funds. The largest investor is Jean-Marrie Eveillard’s First Eagle Investment Management. They are followed by Edgar Wachenheim’s Greenhaven Associates. Other large shareholders include Markel Gayner Asset Management, Impax Asset Management, and Diamond Hill Capital.
John May, the CEO of Deere & Company, predicts higher demands for farm equipment and is optimistic about the agricultural sector.
The company was founded in 1836 by John Deere. Deere & Company has a headquarters in It is headquartered in Moline, Illinois, and employs more than 10 000 people. The company is listed on the New York Stock Exchange with the symbol DE.
Company Website: https://www.deere.com/
Bunge is doing business in the area of sale, transportation, storing, acquisition, and processing of oilseeds and grains used to create animal feed protein and edible oil products for commercial purposes. They also sell fertilizers and produce ethanol. Later in 2020, Bunge announced they will sell their Rotterdam refinery to Nestle for 285 million euros in cash. After the deal goes through in the first quarter of 2021, the company will be leasing the facility from Nestle.
Bunge claims its purpose is to deliver essential feed, food, and oil to the planet and they are achieving this by connecting farmers to consumers. The company was founded in 1818 and today they employ more than 10 000 people. Bunge has a headquarters in Chesterfield, Missouri, and is listed on the New York Stock Exchange with the symbol BG.
Company Website: https://www.bunge.com
in FMC Corp, 41 funds held long positions at the end of the third quarter. One down from the previous quarter. The top shareholders are Capital and Glenview Capital.
FMC Corp is a chemical company focusing on agriculture. The company was founded in 1883 and has a headquarter in Philadelphia, Pennsylvania. They employ up to 10 000 employees and are listed on the New York Stock Exchange with the symbol FMC.
Company Website: http://www.fmc.com
As of the end of September 2020, thirty-six funds revealed long positions. Which was a decrease of three in comparison to the previous quarter. The value of these holdings went up from $775.39 million to $1.06 billion in the previous quarter.
Notable shareholders of Corteva are Eminence Capital, Sessa Capital, Holocene Advisors, and Glenview Capital. Corteva came to life as an independent public company in 2019. The company headquarters is in Wilmington, Delaware and it employs more than 10 000 people. Corteva is listed on the New York Stock Exchange with the symbol CTA.
Company Website: http://www.corteva.com/
According to Insider Monkey, the number of hedge funds that held Tyson Foods shares fell to 36. The top shareholders are AQR Capital Management. They own 1.93 million shares worth $115.08 million. Author investors are Polaris Capital Management, Citadel Investment Group, and Point72 Asset Management.
Tyson Foods is the world’s largest producer, distributor, and marketer of chicken, beef, and pork. Tyson stock was down by more than 22% since the beginning of 2020 due to a pandemic outbreak. However, better revenue and EPS came up in the following quarters.
Piper Sandler increased the company’s target to $77 and changed the Tyson status from Neutral to Overweight. Experts predict vaccine rollout will increase demand for foodservice sales while eat-at-home trends stay strong.
Company Website: https://www.tysonfoods.com/
CF Industries Holdings, Inc.
CF Industries Holdings is a distributor and producer of agricultural fertilizers. Their stock fell by 15% since the beginning of the year. The third quarter resulted in a net loss of $0.13 per share and a decline of 18% in revenue. In August, Citi increased the stock rating from Neutral to Buy and increased the price target to $38 forecasting a surge in demand.
The company was founded in 1946 and has a headquarters in Deerfield, Illinois, a suburb of Chicago. They employ 5 000 people and are trading on the New Stock Exchange with the symbol CF.
Company Website: http://www.cfindustries.com
Insider Monkey reported an increase in investors from 10 to 31 during July and September. The total value of their holdings advanced to $364.57 million from $144.52 million. Top shareholders among their investors are Citadel Investment Group, Peter Rathjens, Millennium Management, Arrowstreet Capital, and Bruce Clarke.
AGCO’s shares did well this year and are 145% in the green. They had a strong third quartal. Both the EPS and the revenue exceeded the estimates. AGCO Martin Richenhagen predicted the demand for farm equipment to increase in the US but fall in Europe.
Company Website: https://www.agcocorp.com/
The number of bullish funds decreased to 21 in the third quarter. Their value, on the other hand, increased from $450.16 million to $714.30 million. Mosaic’s largest shareholder is Adage Capital Management with almost 9.39 million shares. Among other prominent investors are David Shaw’s D E Shaw, Slate Path Capital, and Arrowstreet Capital.
Mosaic reported a drop of more than 13% in the third-quarter earnings report dating November 3rd. Adjusted EPS exceeded expectations by $0.06 and reached $0.23. Revenue equaled $2.38 billion which is a decrease of almost 14%. The company claims the fertilizer price and demand are stable. However, Scotia Bank demoted the stock for underperforming. It is now in Sector Perform while it was in Outperform. Scotia Bank explained they expect phosphate prices are more likely to drop than to rise.
Company Website: https://www.mosaicco.com/
On the list of best stocks to buy Archer-Daniels-Midland ranks 9th. During the first month of the pandemic, the company’s stock lost more than 36%. Since then, it recovered more than 72%. Currently, it is trading year-to-date at nearly 10%.
Archer-Daniels-Midland Co has been around since 1902 and is in the business of corn and oilseeds processing, storing products that take part in the processing industry, and transport and agricultural services. Every quarter for the last 87 years, the company has been paying dividends. While for the last 30 years, it has been increasing dividends yearly. Because of this, Archer-Daniels-Midland Co made it to the Dividend Aristocrats List. This prestigious list hosts numerous stocks whose companies raised dividends yearly for a minimum of 25 years.
According to the predictions, Archer-Daniels-Midland Co will continue paying solid dividends. Recently, the company declared a dividend of $0.2 per share. It remained unchanged over the quarter. Until the end of the third quarter, twenty-six funds held shares of ADM. Which is a decrease of two compared to the end of June. The largest shareholders being John Murphy’s Levin Easterly Partners and Diamond Hill Capital.
Company Website: https://www.adm.com/
Nutrien is a fertilizer producer worth a staggering $28 billion. $550.38 million of Nutrien stocks are owned by twenty-six funds. Which are an increase in comparison to the previous quarter and $490.72 million in twenty-two funds. In 2020 the company held a meeting with its investors and underlined the demand for fertilizers was strong and the prices will grow. The company is confident that the Covid crisis will not hinder the fertilizer industry in the long run. Among other reasons, this may be due to the growth of fertilizer applications in China.
Nutrien reported earnings from the third quarter that shown an increase of an adjusted EPS. It amounted to $0.23 and was expected to be $0.12. The revenue was also higher than the expected number of $380 million. It came to $4.21 billion. On the other hand, the company wrote off $823 million on its phosphate fertilization operations. They claim the market is oversupplied with phosphate and it will keep prices on the lower end for the unforeseen period.
Company Website: http://www.nutrien.com
What is sustainable agriculture?
Sustainable agriculture stands for meeting the needs for food and clothing by farming in sustainable ways. All the while, not endangering the crop resources for the future generation. There are many different methods of how this can be achieved.
Agriculture has a huge impact on the environment. It has contributed to climate change, water shortage, deforestation, and land degradation among other processes. The agricultural industry is on one hand impacting these changes but on another being impacted by them. The sustainability of the human population depends on the sustainability of food systems.
The goals of sustainable agriculture are reducing fertilizers, preserving water, and promoting biodiversity in the ecosystem and crops. Sustainable agriculture also means improving the quality of life for farmers and ensuring farms are financially viable.
There are various methods farmers use to ensure sustainability. One of which is reducing the use of fertilizers by growing plants that produce their nutrients. Ensuring crops are rotated frequently also minimizes the use of chemical nutrients. Pesticides are used to prevent a disease from emerging and destroying the entire crop. Such diseases could also be prevented by mixing crops and therefore could eliminate the need for pesticides. In addition, sustainable farmers use water management systems such as drip irrigation to optimize water usage.
Sustainable agriculture is beneficial for both humans and the environment. Food that is grown without the use of pesticides and chemicals is higher in nutrition and healthier. Consuming naturally grown crops minimizes the risk of getting sick as a consequence of being exposed to synthetic materials.
Promoting sustainability in agriculture is also valuable for the environment. In comparison to industrialized agriculture, eco-agriculture requires 30% less energy for one unit of crop yield. With less consumption of fossil fuels comes the reduced release of chemicals. Resulting in decreased pollution.
How to invest in sustainable farming stocks?
Considering agriculture is largely dependent on fertilizers, pesticides, and genetically modified seeds, it is not surprising social, environmental and governance investors didn’t have agricultural industry on their map. However, these investors are starting to see the agri sector as a way out of climate change and are turning their interest to investing in sustainable agriculture.
In November 2020, it was declared that a total of $17 trillion was invested in social, environmental, and governance (ESG) issues. Of this amount, money managers devoted $2.38 trillion and institutional investors devoted $2.18 trillion to sustainable agriculture.
On the other hand, it is much harder for individual investors to put money in this sector. There is only a small number of stocks to pick from and no exchange-traded funds nor targeted mutual funds. Investing in sustainable agriculture is still in its infancy.
A money-making opportunity emerged when USFRA issued a report stating how investors could make private or public investments in agriculture to improve soils and slow down climate changes.
According to the Environmental Protection Agency, the United States agriculture accounted for 9.9% of total US greenhouse gasses in 2018. Not a lot of ESG investors are interested in this area. That is because small organic farming doesn’t equal sustainable agriculture. It requires more competing practices. In addition, the lack of interest of farmers in eco practices is also driving investors away.
Novozymes, a Danish biotechnology company, is developing a promising solution to increase crop yields without using genetically modified organisms. They treat seeds with enzymes so plants can absorb nutrients easily. Big contributors to agricultural production emissions are animals. More accurately burps and farts coming from sheep, cows, and goats. They come as a result of animals not digesting their food properly. To reduce ruminant methane emissions Royal DSM, a Dutch science company, is developing a feed additive
Riverwater Partners, an ESG investing firm, recently started investing in Farmer Mac. Thanks to Farmer Mac’s loans farmers can build renewable energy systems on farms. Another perk being equipping rural areas with extended broadband internet services. Farmers need the internet to organize and analyze data more efficiently and become more competitive. Trimble Navigation, a California-based technology company, is a good pathway to investing in precision agriculture. Precision agriculture is a trend popular among farmers. It entails getting satellite images to obtain data on their farms and have more control over the inputs. Another way to do this is by using drone technology. AgEagle Aerial Systems develops drone technology for farming needs.
Some companies work on improving the supply chain and lowering the carbon amount. One such company is a Swiss multinational food and drink corporation – Nestlé. Nestlé’s efforts go into working with farmers and helping them implement sustainable farming methods to reduce carbon emissions to net-zero by the year 2050.
Another company striving to reduce carbon emissions is Archer Daniels Midland. They are also dedicated to stopping peat farming, deforestation, and palm oil exploitation. Alongside Archer Daniels Midland is Tyson Foods. They aim to reduce carbon by 30% and water intensity usage by 12% by the year 2030.
Top 5 sustainable farming stocks to buy
A stream of investments touched agricultural technology and the sustainable agriculture sector despite the Covid crisis. According to an article published in TechAccel, there has been an unexpected rise in the agricultural biotech market investments.
Clean Seed Capital Group
Clean Seed Capital Groups is a Canadian agricultural company specializing in creating solutions to ensure sustainability in agriculture. They are developing The SMART Seeder technology. This technology ensures farmers have flexibility in seeding crops but not just in a monoculture environment. It enables them to do cover cropping, intercropping, and multi-cropping all in one pass. Also, it helps diminish carbon dioxide emissions.
It enables farmers to place two, three, four, or more crops into a field in one pass at the same time. Soil amendments, fertility, and seed are put down by each row and each opener. This reduces the need for synthetic fertilizers and lowers pH levels and acidic soils. Pulse crops and legumes fix nitrogen in the soil naturally.
The company was founded in 2010 with a headquarters in Burnaby, Canada. So far they employ up to 50 people and are listed on a Toronto Stock Exchange with the symbol CSX.
Company Website: http://www.cleanseedcapital.com/
American Vanguard Corporation is an American company producing agrochemicals and pesticide delivery systems. The company is working on crop protection, public health application, and the turf and ornaments market. The company is growing and expanding internationally thanks to a working strategy of licensing or acquiring new products that work well for many different high-end niches. American Vanguard capitalizes on innovation in agriculture and develops trends through good positioning, manufacturing, and skilled marketing. They aim to deliver agricultural products, alternative fuels, and natural fiber despite the ever-rising global needs for such products.
AMVAC Chemical Corporation is an American Vanguard subsidiary developing agricultural products for crop protection and public health application. They either license products for worldwide or US domestic sales or acquire product lines.
American Vanguard was founded in 1969 and is employing up to 500 people. Their headquarters is in Newport Beach, California and they are listed on the New York Stock Exchange with the symbol AVD.
Company Website: http://www.american-vanguard.com/
Nutrien is one of the world’s largest producers of phosphate and nitrogen and the number one producer of potash. They pride themselves on producing the three main nutrients farmers are looking for. Nutrien is present in 1500 locations in North and South America and Australia. They offer solutions, advice, and products that help growers increase their profit and maximize yields.
They nurture long-term cooperations with investors and stakeholders while having in focus social, environmental, and economic priorities. Their diverse and scalable portfolio ensures an opportunity to grow dividends, stable earnings, and returning capital to shareholders.
The company came to life in 2018 with a merger of PotashCorp and Agrium. It has a headquarters in Saskatoon, Saskatchewan, and employs more than ten thousand people. Nutrien is listed on the Toronto Stock Exchange with a ticker NTR and New York Stock Exchange with the symbol NTR.
Company Website: http://www.nutrien.com
Novozymes is a Danish biotechnology company and a leader in bioinnovation. They work with their partners to create innovations in industries around the globe. They enable better use of raw materials to their customers through the use of enzymes, biopolymers, microorganisms, and other proteins. They help lower energy consumption, offer more sustainable alternatives to chemicals, and better quality products.
The company was founded in 2000 and employs up to ten thousand people. Novozymes has a headquarter in Bagsvaerd and is listed at a Copenhagen stock exchange with the symbol NZYM.
Company Website: https://www.novozymes.com/en
Trimble delivers services and products that bridge digital and physical worlds. Connectivity, positioning, modeling technologies, data analytics, and connectivity help customers increase safety, productivity, sustainability, and quality. They aim to radically change industries like construction, agriculture, transportation, and geospatial. Trimble employs in over thirty countries and has products in 141 countries across the globe. The company was founded in 1978 by Charlie Trimble and two others. Trimble employs more than ten thousand people and has a headquarters in Sunnyvale, California. The company is listed on the NASDAQ stock exchange with the symbol TRMB.
Company Website: https://www.trimble.com/