Agribusiness stocks outperform in June on price jump in grains

The table below show the 10 largest holdings in the iShares Agribusiness UCITS ETF with Deere likely being the most recognisable stocks for the ordinary investor. Deere, the world leading farming equipment manufacturer, is also a good example of what is happening in agriculture these years with sensors and advanced data analytics being integrated in agribusiness solutions creating a exciting industry in the years to come.

Improved outlook for agriculture and increased M&A

The improving long-term outlook for food-related commodities has also increased merger and acquisition activity with Viterra (controlled by Glencore) announcing a merger with Bunge (an American soybean exporter involved in food processing, grain trading and fertilizer). The merger will create an approximately $100bn revenue agribusiness worth around $34bn. However, the merger is seen as highly anticompetitive and the Argentinian government is already objecting to the deal.

One of our team’s ideas that formed during the pandemic was the idea that food prices had for decades been a close to zero contributor to inflation. However, climate change and more erratic weather patterns are putting upward pressure on prices as production is getting more impacted. The UN Food and Agriculture World Food Price Index is only up 2% annualised since 1990 suggesting food prices have risen less than the overall price level. Changing the starting period to early 2003 the annualised price increase goes up to 4% annualised. This level and maybe even higher due to climate change is not an unreasonable long-term expectation and thus we have a positive view on the agriculture sector long-term.

5-year chart of the iShares Agribusiness UCITS ETF vs iShares Core MSCI World UCITS ETF