One of the biggest stories of the year has been runaway inflation that has boosted the price of many types of goods across the global economy. The numbers for May, the most recent data available, showed that the U.S. the rate of year-over-year inflation was 8.6% — the highest since 1981.
Many investors have tied this inflationary pressure to opportunities in energy. That’s admittedly payed off, with many Big Oil stocks up on the year even as the S&P 500 is down about 20% as of June 17. But we’ve also seen this trend in the agricultural sector — both in the grocery store via higher food prices and in our portfolios.
The following seven investments represent a way to capitalize on rising agricultural commodity prices now. But beyond the short term, they are also all decent long-term investments for investors either looking for a bit of exposure to agriculture for diversification or in income-oriented portfolios where investors are pursuing low-risk dividend trades:
— Nutrien Ltd. (NTR)
— Bunge Ltd. (BG)
— Archer-Daniels-Midland Co. (ADM)
— Corteva Inc. (CTVA)
— VanEck Agribusiness ETF (MOO)
— Invesco DB Agriculture Fund (DBA)
— Teucrium Wheat Fund (WEAT)
Nutrien Ltd. (NTR)
At roughly $50 billion in market capitalization, Nutrien is one of the largest dedicated agricultural companies on the planet. While some diversified chemicals companies produce fertilizer or pesticides, NTR is wholly focused on agricultural products and financial solutions for the farmers that needs these materials.
Its product line spans potash, nitrogen, phosphate and sulfate products, as well as seeds and other farming merchandise through approximately 2,000 retail-facing locations worldwide. NTR has operations in the U.S., Canada, South America and Australia.
Founded in 2018 after the merger of two smaller specialty chemicals companies, Nutrien is an agricultural stock that dominates its niche and has the scale that makes it hard for others to compete. Small wonder that in this risk-off environment, NTR stock has gained more than 10% in 2022 as of June 17, thanks to a reliable business and continued upside amid the NTR lifting agricultural producers.
Bunge is one of the largest agribusiness processors in the world, serving all parts of the food value chain. To begin with, the company purchases grains, oilseeds and other goods directly from farmers. Then it stores and transports those agricultural products around the world via its logistics arm. Next, it processes these commodities via milling, crushing and other refining procedures to turn the crops into material that is more appropriate for end users and commercial organizations. Finally, it packages and sells these goods to both businesses and consumers.
Bunge has a rich history, founded more than 200 years ago in Amsterdam, with current headquarters in St. Louis. It also is riding 20 consecutive years of
Bunge Ltd. (BG)
to shareholders, spanning both the BG as well as the more recent pandemic-related disruptions.
BG is not up as much as some of the other investments on this list, with “only” 5% returns year to date in 2022. But its front-to-back agricultural business model, along with deep relationships and global scale, makes it an incredibly stable option. And right now, BG stock yields about 2.5% as a bonus above share price returns.
uninterrupted dividend payments2008 financial crisisAnother agribusiness giant is ADM, a multinational agricultural processor that provides plant-based elements for , as well as animal feed and industrial biosolutions. Though based in Chicago, this nearly $50 billion heavyweight procures, transports, stores, processes and sells commodities around the world, including in Europe and South America.
ADM is having a heck of a year, with revenue projected to grow about 12% over the prior fiscal year. And as a result, shares are up 14% for the year through June 17, even as the rest of Wall Street has stumbled.
Beyond the current commodity price increases, it’s important to realize that ADM may have a solid place in
Archer-Daniels-Midland Co. (ADM)
portfolios, too. The agriculture industry has historically offered lower growth than other high-flying areas like ADM or consumer tech. However, farming is a recession-proof business. And with a ]yield of 2.0% and payouts that have grown almost 130% in 10 years, from 17.5 cents at the end of 2012 to 40 cents per share quarterly at present, Archer-Daniels-Midland is an agriculture stock with a history of prioritizing shareholders. consumer foodstuffs
long-term dividendUnlike some of the prior names on this list, Corteva is an agriculture stock that some may not recognize immediately. That’s because this firm was born in the Dow-DuPont cloud computing via a 2019 spinout. So while the Corteva name is relatively new, the underlying business has been around for a while. In fact, just before the split, the business that would become Corteva was recording about $14 billion in annual revenue.
Next fiscal year, the top line of Corteva should hit almost $18 billion thanks to its thriving seed and herbicide businesses. These arms are related, as CTVA’s branded seeds deploy “trait technologies” that use bioengineering to enhance resistance to weather, disease, insects and herbicides — then the “crop protection” products can be liberally applied without affecting yield.
Corteva serves farmers almost everywhere — in the United States, Canada, Latin America, the Asia Pacific, Europe, the Middle East and Africa. This wide reach, along with strong customer connections, has provided , with shares of this agricultural stock up about 13% year to date while other stocks are deep in the red.
Corteva Inc. (CTVA)
mergerTurning to ETFs, MOO is a mainstay of any portfolio that is looking for stability in an otherwise difficult market environment exposure to agricultural companies. With an inception date of 2007 and almost $2 billion in assets under management, or AUM, the VanEck Agribusiness ETF is a go-to name for many investors. And with an awfully clever ticker symbol, it’s pretty hard to forget once you learn about the details.
This ETF’s mission is to invest in companies that make the lion’s share of their revenue from agricultural-related chemicals, animal health products, irrigation equipment, farm machinery and the like. Right now, the portfolio is about 55 stocks strong, and its top holdings include global chemicals giant Bayer AG (BAYRY), iconic tractor manufacturer Deere & Co. (), and animal and livestock health care provider Zoetis Inc. ().
Though MOO is slightly in the red year to date, its broad focus on the agricultural sector has allowed it to weather the volatility on Wall Street
VanEck Agribusiness ETF (MOO)
out there. As a sweetener, the MOO also yields about 1.3% at present — only slightly less than the average large-cap stock in the S&P.
DEIf you’re looking for diversified exposure to agricultural commodities instead of the publicly traded companies that service the industry, then take a look at this Invesco fund with more than $2 billion in AUM. DBA seeks to track changes in an index made up of the most heavily traded agricultural commodity futures. That currently includes wheat, corn, soybeans and sugar among the top positions.
Commodity ZTS have come into favor over the last year or two amid inflationary pressures, but many investors may not be familiar with the better than many other funds or have the willingness to research various contracts or expirations. DBA isn’t exactly cheap, with an expense ratio of 0.93% annually, or $93 per year on every $10,000 invested, but it does take some of the expensive guesswork out of this asset class because you can trade this fund in a conventional brokerage account without the churn of per-contract fees on ag futures.
It’s also important to acknowledge that DBA is structured as a limited partnership because of these exchange-traded fund, meaning shareholders don’t pay federal income taxes at the fund level and instead have a most complicated K-1 tax form to deal with after the fund passes along annual income and returns.
That said, you can’t argue with the 2022 performance as this agriculture fund is up more than 10% on the year through June 17 even as the typical have moved more even further in the opposite direction.
Invesco DB Agriculture Fund (DBA)
Though a decidedly niche fund, WEAT provides investors an easy way to gain exposure to the price of wheat futures in a futures — without diversification into other agricultural commodities.
Right now, the fund is weighted about a third in wheat futures with September 2022 expiry, a third in December 2022 and a third more in December 2023. This gives you a decent span of time to avoid short-term price volatility but still play the medium-term upside in agricultural commodities.
So why wheat, instead of the other grains out there? Well, for starters, the wheat futures complex is one of the most futures market in the world, and the WEAT ETF in particular is one of the largest single-good ag funds out there, with more than $600 million in AUM. Furthermore, the good is in high demand across the global economy for use in food and animal feed, but also in specialized applications like particleboard production and even plastics.
Besides, with this agriculture ETF up more than 40% year to date, there is clearly some nice future contracts here that makes wheat worth a look vs. the alternatives.
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Update 06/21/22: This story was published at a previous date and has been updated with new information.