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Investing in Agriculture Stocks

Updated: Jan. 11, 2021, 10:48 a.m.

Agribusiness is a life-sustaining operation, and there are numerous ways for investors to own a piece of this action.

For much of human history, food security has been a deciding factor in the rise and fall of civilizations. The turning point for agricultural advancement was World War II: More people died from starvation than from combat during the years of conflict, which proved to be a valuable lesson for humanity. As the world changed after the war, food production rapidly industrialized -- first with factory farming, fertilizers, and pesticides; later with genetically modified crops, digital agriculture, plant-based proteins, vertical farming, and water desalination.

Like much of the global economy, the agricultural industry has been affected by COVID-19, which has led to layoffs and furloughs, export and import restrictions, and, in the early months of the crisis, massive quantities of food and crops being dumped as farmers dependent on selling to restaurants no longer had an end buyer.

Still, the agricultural sector has bounced back from the crash in early 2020 as the economy has somewhat revived, and a number of agriculture exchange-traded funds, like iShares MSCI Agriculture Producers ETF (NYSEMKT:VEGI) are even in positive territory for the year.

The agriculture sector is also sensitive to trade policy and environmental regulations, meaning the election of Joe Biden could shake things up. Generally the industry seems hopeful that Biden can strike favorable trade deals for farmers, but fearful of increased regulation and taxes. Biden has proposed introducing a low-carbon manufacturing economy in rural America, using ag byproducts like corn stock and manure to make products like chemicals and other materials, and he plans to promote the use of biofuels such as ethanol, which could be a boon for the agriculture industry.

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The agriculture industry is rapidly changing in the current economic climate, although many companies have fared relatively well through the global pandemic. Check out the recent articles feed below for the latest news.

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Today agribusiness is big business, touching a large array of different market industries. The scale required for operations to span multiple continents, account for geopolitical shortcomings, and insulate crops from the risks of weather patterns and commodity markets has created a long list of agricultural titans. These companies -- many with healthy profits, cash flows, and dividends -- offer excellent opportunities for investors.

If you’re looking for dividend-paying stocks that provide exposure to the farming industry, then here’s an overview of what you need to know.

The best agriculture stocks

Agribusiness today is full of investing opportunities. You can choose among companies providing agricultural products and services such as fertilizers (nitrogen, phosphate, and potash, with niche categories sprinkled in), pesticides (which protect plants against insects, fungi, weeds, and other nuisances), seeds, crushing and processing, and livestock. and a handful of emerging markets.

Here’s a list of eight excellent agriculture stocks spanning these opportunities. They’re excellent for investors with a long-term mindset:

Company Market Cap Dividend Yield Major Markets
Archer-Daniels-Midland (NYSE:ADM) $24.7 billion 3.0% Plant-based proteins, processing, industrial biotech
Bayer (OTC:BAYRY) $65.9 billion 5.4% Pesticides, biologicals, digital agriculture
Bunge (NYSE:BG) $6.4 billion 3.1% Processing, industrial biotech
Scotts Miracle-Gro (NYSE:SMG) $10.7 billion 1.3% Fertilizers, lawn care, hydroponics
Corteva Agriscience (NYSE:CTVA) $20.8 billion 1.3% Pesticides, biologicals, digital agriculture
Nutrien (NYSE:NTR) $21.9 billion 3.7% Fertilizers, digital agriculture, retail
FMC Corp (NYSE:FMC) $14.2 billion 1.5% Pesticides and biologicals
Tyson (NYSE:TSN) $23.3 billion 2.5% Meat production, plant-based proteins

Data source: Ycharts, SEC filings, as of Dec. 14, 2020

Of course, not all agriculture stocks are created equal. There are unique considerations in each ag-related industry, and as you’re assessing what agricultural stocks are right for you, consider how these opportunities and risks align with your individual investing preferences.

Robotic arm caring for lettuce plant in greenhouse

Image source: Getty Images

The basics of agribusiness: Six opportunities to consider

Here's an overview of six major opportunities and the investing style best served by each, listed in no particular order:

1. Fertilizers (cash flow and dividends)

The world’s major crop nutrients are nitrogen, potash, and phosphate. Nitrogen is manufactured using synthetic chemistry, while potash and phosphate are mined. Demand for all three nutrients is heavily reliant on the health of planting seasons for major crops such as corn, soybean, and wheat. The market has been challenging in recent years, but fertilizers remain an essential part of food production. That's especially true in places with poor soil quality, such as Brazil and China.

Nutrien is one of the world's largest fertilizer producers and the largest potash producer, generating 6 million metric tons annually. The company also sports some of the lowest nitrogen production costs on the planet. Despite an onslaught of headwinds, Nutrien’s business generated $1.6 billion in first-half 2020 operating cash flow to support its market-beating dividend yield. The company has invested heavily to expand its retail segment, which allows it to capture higher-margin sales by selling directly to farmers. The company expects to cross $1 billion in online sales for the first time in 2020.

Scotts Miracle-Gro offers exposure to individual consumers such as gardeners and homeowners in need of lawn care products as well as to professional customers like farms. The stock has done particularly well during the pandemic as stay-at-home orders and a general shift to living away from major cities have sparked an interest in gardening and outdoor care. Revenue grew 31% in fiscal 2020, which ended in September, but the company still expects modest gains in fiscal 2021. Additionally, Scotts gives investors exposure to the cannabis sector, a high-growth opportunity, through its hydroponic growing and lighting products under its Hawthorne segment.

2. Pesticides (cash flow and dividends)

Pesticides are another agricultural input that has faced challenging market conditions in recent years, and for many of the same reasons as fertilizers. But a wave of consolidations and broad expectations for improving market conditions could make a big difference in the 2020s.

In 2018, Bayer acquired Monsanto to become the most dominant player in the industry. And in a series of transactions from 2018 to 2019, FMC completed the spinoff of its lithium segment, sold its nutrition segment, and purchased assets from the old DuPont to become one of the largest global agrichem companies. The old DuPont and the old Dow Chemical merged and then split into three in 2019, one of those pieces being Corteva Agriscience.

Bayer, FMC, and Corteva Agriscience are all leveraging their scale to spread risk across a diverse geographic area. Given the importance of pesticides to 21st-century agriculture and expectations for a recovery in the near term, investors might want to take a close look at the trio.

3. Digital agriculture (growth and cash flow)

Advancements in data crunching, satellite imagery, and mobile computing power have given rise to digital agriculture. And while this might be a new opportunity, hundreds of millions of acres are covered as of early 2020.

Here’s how it works: Many farmers can now pay a monthly or annual subscription fee to access historical and predictive data specialized for their farms. How many seeds should a farmer place in each row in the northwest corner of their land? When’s the optimal time to apply fertilizer this season? Will corn rootworms be worse than usual?

The goal of digital platforms is to increase the efficiency of food production, improve farm-level incomes, and create more sell-through opportunities for major retail brands. It should be no surprise, then, that the leading digital agriculture platforms include Bayer, Corteva Agriscience, and Nutrien -- all of which can directly benefit from leveraging existing relationships with farmers.

4. Plant-based meats (growth)

Consumers are increasingly seeking out animal-free proteins. To succeed, consumer brands and start-ups (like Beyond Meat (NASDAQ:BYND), Impossible Foods, and more) need to deliver on nutrition, taste, texture, and price. Thus these companies must partner with and create supply agreements with the world’s largest agriculture companies, such as Archer Daniels Midland, Bunge, and Tyson Foods.

To manage this growing opportunity, Archer Daniels Midland has added a “Flexitarian Solutions” department to its company -- although management is quick to note the company developed textured vegetable proteins in 1966. Bunge is one of the world’s largest soybean producers and processors, which could keep the company in prime position, considering soy protein is a leading source of plant-based proteins (for example, Impossible Foods uses soy). Tyson Foods is leveraging its knowledge of animal proteins to assist start-ups in navigating markets, distribution channels, and consumer preferences. It is also taking equity stakes when possible, and nurturing its own animal-free protein brands.

A handful of nontraditional stocks also merit your consideration. Precision BioSciences (NASDAQ:DTIL) is developing a novel gene-editing technology platform focused on human health, but it owns a subsidiary dedicated solely to agricultural applications. One focus is engineering high-protein, neutral-tasting chickpeas, which could become a next-generation plant-based protein source. For example, Beyond Meat relies on pea protein today for its products, but might be tempted to switch at least some supply to chickpeas if the product lives up to the hype.

5. Biologicals (growth)

Chemical-based pesticides and fertilizers are poised to dominate their respective markets for the foreseeable future, but investors should know that living technologies are also in production, and may see significant growth in the years ahead. Biologicals are microbe-based treatments of soils or crops designed to boost yields, improve plant defenses against pests, and potentially reduce dependence on chemical inputs.

For example, seeds can be coated in naturally occurring soil microbes. When the seeds give rise to plantlings, the microbes cultivate the root tips and efficiently transfer nutrients to the plant. That can make fertilizer applications more efficient or less necessary and improve overall plant health.

Individual investors can gain exposure to the emerging opportunity in a few ways. Bayer, FMC, and Corteva Agriscience are all leading developers of biologicals. From its acquisition of Monsanto, Bayer now has the leading biologicals brand on the market today through a partnership with Novozymes.

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6. Future markets

A number of agribusiness applications on the horizon aren’t quite investing opportunities yet but should be part of an agriculture investor’s watch list in the years ahead.

Flavors and fragrances are high-margin products mostly manufactured through synthetic chemistry, but specialty agriculture has a place in the market, too. Vertical farming, a method of growing crops using layers or shelves to conserve space, is a hyped technology, but relatively impractical at present given the scale required to make it work. For the time being, vertical farming is relatively inaccessible to individual investors. Industrial biotechnology will need to leverage established agricultural supply chains to reduce operating costs, and the industry is still figuring out how to scale and what products to manufacture.

Finally, water is a crucial component in agriculture, but also a limited resource, and global water consumption is expected to grow significantly over the next generation. Therefore, investors should keep an eye on water treatment and desalination stocks like Xylem (NYSE:XYL) and Consolidated Water (NASDAQ:CWCO), which offer exposure to water sustainability.

For now, investors can only watch and wait for these futuristic opportunities to become accessible to their portfolios. That said, as with digital agriculture and plant-based proteins, established companies will likely play a big role if and when newer technologies are ready for prime time.

Food security still matters in the 21st century

Humanity has made tremendous progress in reducing famine and food shortages in the last 70 years, but that doesn’t make food security any less important in the 21st century. A rapidly expanding global middle class will increase caloric demand per capita and shift preferences to more protein-heavy foods. It will require all hands on deck, with some new technologies sprinkled in, to meet the challenge -- and agricultural companies like those above are hard at work on these projects. Is your portfolio exposed to the opportunity?

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