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in Agriculture Stocks

Investing in
Agriculture Stocks
Jeremy Bowman Updated: Feb. 2, 2022, 4:53 p.m.

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

Like much of the global economy, the

agricultural industry has been
affected by the COVID-19 pandemic,
but it’s made an impressive recovery
as commodity prices have soared in
several categories. A number of
agriculture exchange-traded funds,
such as iShares MSCI Agriculture
Producers ETF (NYSEMKT:VEGI),
now trade around all-time highs.

STAY UP TO DATE

The agriculture industry is

rapidly changing in the
current economic climate.
Check out the “recent
articles” feed below for
the latest.

Today, agribusiness is big business,

touching a wide array of industries.
The scale required for operations has
led to market power being
concentrated in a handful of titans.
These companies -- many with
healthy profits, cash flows, and
dividends -- offer excellent
opportunities for investors.

The best
agriculture stocks
Investors can choose among
companies providing agricultural
products and services such as
fertilizers, pesticides, seeds,
processing, and livestock. There are
also a handful of emerging markets.
As producers of basic food, many
agricultural stocks are considered
consumer staples, meaning that
demand for their product is not
affected by the broader economy.

Here’s a list of nine top dividend-

paying agriculture stocks and one
start-up spanning a variety of
investment opportunities. They’re
great for investors with a long-term
mindset.

Market Dividend Major

Company
Cap Yield Markets
Plant-based
Archer Daniels proteins,
$39.9
Midland 2.1% processing,
billion
(NYSE:ADM) industrial
biotech
Pesticides,
Bayer $57.7 biologicals,
3.9%
(OTC:BAYR.Y) billion digital
agriculture
Processing,
Bunge $13.8
2.1% industrial
(NYSE:BG) billion
biotech
Fertilizers,
Scotts Miracle- $8.8
1.6% lawn care,
Gro (NYSE:SMG) billion
hydroponics
Pesticides,
Corteva
$35.1 biologicals,
Agriscience 1.2%
billion digital
(NYSE:CTVA)
agriculture
Fertilizers,
Nutrien $42.5 digital
2.6%
(NYSE:NTR) billion agriculture,
retail
FMC Corp $14 Pesticides,
1.9%
(NYSE:FMC) billion biologicals
Meat
Tyson $34 production,
2%
(NYSE:TSN) billion plant-based
proteins
Manufacturer
Deere & Co. $118.3
1.1% of farm and
(NYSE:DE) billion
industrial
AppHarvest $376.5 Vertical
-
(NASDAQ:APPH) million farming

Data sources: YCharts, SEC filings.

Current as of Jan. 17, 2022.

Of course, not all agriculture stocks

are created equal. There are unique
considerations in each ag-related
industry. As you’re assessing which
agricultural stocks are right for you,
consider how these opportunities and
risks align with your investing
preferences.

Image source: Getty Images

The basics of
agribusiness: 7
opportunities to
consider
Here's an overview of seven major
opportunities, listed in no particular
order:

1. Fertilizers (cash flow

and dividends)
The world’s major crop nutrients are
nitrogen, phosphorus, and
potassium. Nitrogen is manufactured
through synthetic chemistry, while
potash and phosphate are primarily
mined. Major crops such as corn,
soybeans and wheat rely on all three
nutrients. Fertilizer prices soared in
2021 as raw materials costs increased
for nitrogen fertilizers and demand
rose as well, leading to a boom year
for producers like Nutrien.

Nutrien, one of the world's largest

fertilizer producers and the largest
potash producer, is on track to
generate 17 million metric tons
annually. The company incurs some
of the lowest nitrogen production
costs on the planet. The commodities
boom has been kind to Nutrien, with
crop prices and cash flow margins at
multi-year highs. As a result, the
company reported record adjusted
EBITDA of $4.7 billion through the
first three quarters of 2021.

ScottsMiracle-Gro offers exposure to

individual consumers such as
gardeners and homeowners in need
of lawn care products, as well as
farmers. The stock did well during
the early stages of the COVID-19
pandemic as stay-at-home orders and
a general shift to more time spent
outdoors sparked an interest in lawn
and garden care. Revenue has
declined in recent quarters as the
economy has reopened, but it’s still
up significantly from pre-pandemic
levels, which is a promising sign for
long-term growth.

2. Pesticides (cash flow

and dividends)
Pesticides are another agricultural
input that have seen a spike in prices
due to supply chain constraints and
material shortages. A wave of
consolidations in recent years is also
reshaping the industry.

Bayer acquired Monsanto in 2018 to

become the 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 DuPont to
become one of the largest global
agrichemical companies. DuPont and
Dow Chemical merged and then split
into three separate companies in
2019, with one of them being Corteva
Agriscience.

Litigation and regulation remain

risks in the sector, however. In
February 2021, Bayer set aside $2
billion to cover any further claims
against its Roundup weed killer,
which has been tied to various
cancers. Corteva could also face
litigation from its toxic pesticide
chlorpyrifos, which the U.S.
Environmental Protection Agency
banned in 2021. A class-action
lawsuit in California was filed against
the company over the pesticide’s links
to brain damage in children.

3. Digital agriculture
(growth and cash flow)
Advances in data-crunching, satellite
imagery, and mobile computing
power have given rise to digital
agriculture. Although this might
appear to be a new opportunity,
hundreds of millions of acres were
covered as of early 2020.

One example: Many farmers can now

pay a monthly or annual subscription
fee for historic and predictive farm-
specific data. How many seeds should
a farmer place in each row in the
northwest corner of their land? When
might be the optimal time to apply
fertilizer this season? Are corn
rootworms likely to be worse than
usual?

John Deere has emerged as a leader

in the category and the technology,
and, paired with its industry-leading
farm equipment, has led to a boom in
the stock, which has delivered a total
return of more than 10,000% since
its debut in 1978.

4. Plant-based meats
(growth)
Increased demand for animal-free
proteins is driving a boom in plant-
based meat products. To succeed,
consumer brands such as Beyond
Meat (NASDAQ:BYND), Impossible
Foods, and others need to deliver on
nutrition, taste, texture, and price.
Companies focused on plant-based
meats may benefit by creating
partnerships and supply agreements
with larger agriculture companies
such as Archer Daniels Midland,
Bunge, and Tyson Foods.

A handful of nontraditional stocks

also merit consideration. Precision
BioSciences (NASDAQ:DTIL) is
developing a novel gene-editing
technology platform focused on
human health, but it also owns a
subsidiary dedicated to agricultural
applications. One focus is engineering
high-protein, neutral-tasting
chickpeas, which could become a
next-generation, plant-based protein
source. Beyond Meat, meanwhile,
still relies on pea protein for its
products, but it might be tempted to
switch at least some supply to
chickpeas if the Precision 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 defenses
against pests, and reduce dependence
on chemical inputs.

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 through a partnership
with Novozymes (OTC: NVZM.Y).

6. Vertical farming
(growth)
Vertical farming is the latest
agricultural technology to sweep the
market. Investors are betting big on
stocks such as AppHarvest and Local
Bounti (NYSE: LOCL), a hybrid
between vertical farming and
hydroponics. In vertical farming,
companies use shelves and artificial
light to grow produce, minimizing
space and water consumption. By
conserving space, vertical farming
has the potential to create facilities
that are located much closer to
consumers.

AppHarvest promises to do just that

as the Kentucky-based company says
it serves consumers within a one-day
drive of its facilities. This compares
favorably to conventional produce
that is often imported from abroad or
shipped from California.

AppHarvest’s 60-acre flagship facility

is among the biggest indoor farms in
the world and serves as a template for
the business. The company is
currently focused on growing
tomatoes, but it has big expansion
plans, forecasting at least $350
million in revenue with strong profit
margins by 2025.

Local Bounti, a Montana-based ag

tech start-up, also has big ambitions,
targeting $462 million in revenue by
2025 as it plans to open four new
facilities before then. The company
also counts Cargill as a major investor
and partner; the privately owned
agriculture giant loaned $200 million
to Local Bounti in September 2021
and is considering financing all of its
future facilities through 2025.

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Energy Stocks
Agriculture relies on energy.
Get a list of the most promising
stocks in the energy sector.

7. Future markets
There are a number of agribusiness
applications on the horizon that
investors should watch 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 as interest
increases in things such as natural
perfume. Vertical farming also seems
to be a good fit here as the quantities
needed are much lower than in
conventional food production.

Water is a crucial component in

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

Food security still

matters in the 21st
century
Humans have made tremendous
progress in reducing famine and food
shortages in the past 70 years, but
that doesn’t make food security any
less important in the 21st century. A
rapidly expanding global middle class
and increasing population are likely
to raise caloric demand and shift
preferences to more protein-heavy
foods. It will require some new
technologies to meet this challenge,
and agricultural companies like those
above are hard at work on these
projects. Is your portfolio ready to
harvest the opportunity?

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