While even today’s most thriving industries can go out of style and turn out to be outdated in a few years to come, agriculture is always here to prevail more than any other business. Farming has been in practice for more than 1400 years, and it’s no secret it will make incredible strides in the future as well.
However, having more than 10 billion mouths to feed by 2050, boosting farming efficiency, and switching to smart agriculture is the call of time. And the shoot-up in food demand resulting from the exponential increase in global population generates a long-term demand driver for farming stocks.
But what is the best agricultural stock to invest in? To learn more about agricultural stocks, read on.
What is Agribusiness?
Agribusiness encompasses the enterprises, products, processes, and study areas of the interdependent and interconnected value chains in the farming and bio-economy sectors. Though it faced ups and downs at times in the past, making traders experience volumes, volatility, and movements in the agriculture market, it is one of the oldest business sectors that helps the world feed the increasing population and attain long-term economic sustainability.
What is International Agriculture Investing?
International agriculture investing is any investment you can make in an offshore business. It can be in any passive or non-passive investment schemes, for instance, the stock market, farmland, business products, REITs, or anything legitimate.
The best thing about international agriculture investing is that you do not have to travel across the sea or hold residency in the country based on the type of industry you invest in. You can stay wherever you live and purchase shares or do business with an international brand.
Ways to Invest in Farmland?
Investing in agriculture and farmland is always a wise decision as it has seen stable growth historically.
How farmland has produced substantial investment gains worldwide over the last few decades would send a shiver down your spine. While in the UK, the investment performance of forestry and farmland has outperformed all other assets in the last decade, in the USA, farmland investors have seen an AAR (average annual return ) of 11% – 12% in the past couple of decades. The high AAR in farmland compared to other assets makes it one of the lucrative international investment options.
You have a handful of options to invest in farming, even without really owning any land. Some of the viable options are:
- Buy farmland directly – It is one of the most obvious farmland investment choices. However, you may have to make a hefty capital investment to buy land. Even if you are not directly into crop cultivation, owning farmland can deliver higher returns.
- Real estate investment trusts – While buying farmland outright comes with a hefty price tag, investing in a diversified farmland REITs (Real Estate Investment Trusts) portfolio and leasing it to farmers is always a cost-effective option.
- Stock purchase – Investing in equity is another farmland investment option that returns high dividends. You can purchase shares of organisations that support agribusiness by selling fertilisers, seeds, farming tools, etc. Investing in agriculture stocks means buying shares of a company:
- having long-term and stable demand
- growing substantially and is likely to be in the market for years to come
- leveraging the power of emerging technologies to level up the business
- ETFs (Mutual Funds & Exchange Traded Funds): Are you interested in buying shares of an international farming company but not sure about which business can be more profitable to invest in? The safe choice would be investing in an agri-focused EFT as it can return a middle-of-the-road dividend.
Why Investing in Agricultural Stock is a Good Idea?
Current trends that drive agricultural stock investment to new heights:
Agriculture Stocks is a Hedge Against Inflation
It’s no secret that inflation is edging up worldwide amid the covid-19 pandemic, regardless of how much the governing authorities try to prop up product prices. For instance, the inflation rate in the UK surges to 5.4% in December 2021, which is the highest in the last 30 years. In such a situation, having assets in cash holdings means that your purchase capacity will fall speedily.
Investing in the stocks of an inflation-proof business can help you avoid this free fall. And when you buy the equity of an agribusiness company that deals with food-related supply chains, you are sure to get sustainable returns with minimal risks as no matter what other industries do, people will have to buy food.
Population Growth and Food Demand
The increasing population growth correlates to a surge in food demand and investment in agriculture stocks.
Plus, with more people worldwide entering middle-class society, demand for moderately expensive food is also increasing. The result is that more businesses are getting involved in crop production and poultry farming, introducing emerging technologies for higher dividends – investing in such companies can also pass along their higher costs to you as an investor in their stocks.
What is the Best Agricultural Stock to Buy?
Archer Daniels Midland (ADM)
Company Overview at a Glance (As of 02/7/2022)
Annual Sales: $85.25 billion
Net Income: $2.71 billion
Return on Equity: 13.50%
Return on Assets: 6.16%
Archer Daniels Midland (ADM), the largest publicly traded agriculture business in the USA, is making great strides in corn processing by turning corn into essential byproducts, starches, and sweeteners. Besides, it specialises in processing wheat, seed oils, cocoa, and other farming products. This vertically integrated international business creates a huge port operation and transportation network worldwide to gain a competitive edge and keep growth rolling in the system.
The mix of a recession-resistant though-out business model with a solid 2.11% dividend yield makes this innovative agribusiness our top pick.
Deere and Company (DE)
Company Overview at a Glance (As of 02/7/2022)
Annual Sales: $44.02 billion
Net Income: $5.96 billion
Return on Equity: 37.66%
Return on Assets: 7.47%
Deere and Company is a USA-based company specialising in manufacturing and distributing heavy machinery, agricultural and forestry equipment, diesel engines, drivetrains essential for heavy machinery, and turf care tools.
With the recent skyrocketing trend of switching to tech-based farming in the leading crop-growing regions, including China, Europe, and South America, the DE investors have seen an increase in their sales.
Analysts predict a staggering 17% increase in income and an 18% sales increase per share growth in 2022. Despite all market headwinds amid the Coronavirus pandemic, the stock of Deera company rallied over 34% in the last year and is forecast to continue this year as well. One of the most impressive parts of the company is that it offers investors a 1.14% annual dividend yield.
CF Industries Holdings
Company Overview at a Glance (As of 02/7/2022)
Annual Sales: $4.12 billion
Net Income: $317 million
Return on Equity: 12.08%
Return on Assets: 5.77%
Headquartered in Deerfield, Illinois, United States, CF Industries Holdings, a North American multinational company, is a market leader in manufacturing and distributing ammonia-based fertilisers. It also manufactures and distributes non–fertiliser goods like nitric acid, diesel exhaust fluid, and urea liquor. Offering investors a solid 1.60% dividend yield, CF share price jumped at a staggering 77.2% in 2021.
Mosaic Co.
Company Overview at a Glance (As of 02/7/2022)
Annual Sales: $8.68 billion
Net Income: $666.10 million
Return on Equity: 13.78%
Return on Assets: 6.81%
Headquartered in Tampa, Mosaic Co. is one of the biggest manufacturers of potash and phosphate-based fertilisers in the USA.
The stock of Mosaic Co. was up around 48% and closed at $36.47/share on 16th December 2021.
The solid 1.03% dividend yield and financial health and growth possibilities of this Fortune 500 company make its stocks a good pick for value and momentum investors.
Joel Stokes is the founder of Agrisurfer, a leading blog dedicated to exploring the intersection of technology and farming. With a deep passion for innovation in agriculture, Joel and his team of experts provide in-depth analysis and insights on everything from high-tech machinery to drone surveillance for livestock.
