Agriculture is one of the world’s oldest markets. Though it’s been negatively affected by COVID-19, it’s made an impressive recovery. Check out the agribusiness stocks to consider in 2022.
What is agribusiness?
Agribusiness is defined as all products that are linked to or form a part of farming products. This industry is one of the oldest in the market, and agribusiness is very closely linked to, and has a direct impact on sustainable development goals.
Agriculture employs the most people in the world, more than any other economic sector. The business is the main source of income and food source for many people living on or below the poverty line.
Investing in agriculture has a direct link to both improving food security and sustainability. The industry is vital to our survival and will be around for years to come. It is, however, affected by government policies and investors need to be aware of this.
Traders on the other hand enjoy the vast movements, volatility and volumes experienced in the agricultural markets. Agribusinesses and commodity futures offer traders some interesting opportunities.
Why are investors and traders interested in agribusiness?
One major factor of why investors and traders are interested in agribusiness is its longevity. We need agriculture to feed the world, so it’ll be here long into the future. This means there will almost always be an opportunity for you to open for long-term investment or trading positions.
Further, agriculture is a fast-developing industry with new projects and trends such as urban, small scale, aqua, vertical, and indoor farming coming onto the scene. This is particularly popular in European countries such as the Netherlands. Going forward, many agribusinesses are focusing on becoming more sustainable, which will likely affect their popularity among investors and traders.
Overall, agricultural commodities have risen in the price due to the reduced transport and supply created in 2020 due to the Covid-19 pandemic. This saw commodities like sugar rise to £322 per tonne in February 2021.
Agribusiness employs a large number of people across the globe. As the image below shows, the world relies heavily on the agriculture industry.
How to invest in or trade agriculture related stocks and ETFs
Before investing or trading agriculture-related stocks and exchange traded funds (ETFs), you need to understand the difference between the two methods. Investing enables you to speculate on the longer-term results of an agribusiness or commodity. You’ll buy and own physical stocks or ETFs, and only make a profit if the share or ETF price increases. Plus, you could earn dividends if the company pays them and enjoy shareholder voting rights.
Trading enables you to speculate on the price changes of agriculture stocks, ETFs and commodities without owning any assets outright.
You can trade with us using spread bets and CFDs. Both are leveraged derivatives, which means you can open a position using a deposit (margin). You’d still get exposure to the full value of the trade, but this means profits and losses will be magnified. Always take care to manage your risk when trading on leverage.
How to start trading or investing
Deere & Co.
Deere & Co. is the world’s largest farming equipment maker, often under the brand John Deere. The company has a solid dividend that has grown every year since 2003. Since 2015, the dividend has averaged at 3%1.
It is also one of Berkshire Hathaway’s holdings (Warren Buffet’s company), which owns nearly 7% of Deere & Co. shares2.
CF Industries Holdings
To grow better and more fruitful crops, farmers use fertilisers on their crops. CF Industries Holdings is a major manufacturer and disturber of this product, predominantly nitrogen and phosphate-based fertilisers.2
Recent reports from the company state that they believe the nitrogen to grow at a rate of 2% per year. The company share price has grown at 77% over the past year with a solid dividend of 2.19%.
The world’s largest producer of phosphate and potash is Mosaic Co. Using phosphate and potash crop nutrients is one of the ways farmers add nutrients back into the soil for their crops.
Mosaic Co. is said to benefit2 from the expected rise in demand for fertilisers worldwide. This increase in demand can be linked to population growth and healthy eating trends. The dividend yield last year was low at 0.84%, however, the company share growth was 94%.
Monsanto Co. is a worldwide agribusiness giant. Many US home gardeners will know their Roundup weed killer. The company produces and distributes seeds and crop protection products.
Monsanto is continually on the cutting edge of developing new biochemical technology to help gardeners yield more from their plants.
Market Vectors Agribusiness ETF
This ETF has a broad holding across the agribusiness sector. It derives 50% of its revenue directly from agricultural businesses. The ETF holds companies such as Monsanto, Syngenta, Tyson Foods and Potash in their fund.
These companies give investors access to fertiliser, biochemical and seed producers in the agribusiness sector. The agriculture ETF also has a low expense ratio of around 0.57% and grew by 20.47% between January and September 2021.
Teucrium Corn Fund
This fund directly tracks the price of corn. Corn is one of the world’s most important food crops, making it useful as a tactical hedge against inflation. While this ETF does not offer diversification across multiple assets, it does offer a broad investment into the corn markets. The ETF has returned 35% year to date (YTD) and has a beta of 0.60.
Invesco DB Agriculture Fund
The Invesco DB Agriculture Fund offers diversification across many agriculture products and commodities, such as corn, wheat, fertilisers and biochemical products.
The fund also has trading volumes above 500,000. This level of movement makes it easy to buy and sell, making it a suitable option for traders wishing to trade on the broad agriculture markets.3
The benefits and risks of investing in agribusiness
By investing in agribusiness stocks and ETFs, you’re investing in more sustainability and eradicating food shortages. Many of the listed companies spend millions every year developing new products to improve the yield of crops and to improve the nutrients of the soil.
Further, it gives you opportunities to invest in new trends such as indoor farming and biofuel, the ability to diversify your portfolio, and help to improve sustainability and combat food shortages.
However, as with any type of investment, your capital is at risk. No stock price is ever guaranteed and unforeseen events, like extreme weather, could compromise agribusiness share prices. Always take steps to manage your risk carefully and invest within your means.
Best agriculture shares and ETFs summed up
- Agribusiness is defined as all products that are linked to or form a part of farming products
- The industry is suited to both long-term investors and short-term traders who can explore commodities, shares and ETFs with us
- You can trade or invest in agribusiness using a spread betting or CF account, or invest on our share dealing platform