The Zacks Agriculture - Products industry will benefit from the stable demand for food, supported by an increasing population. Rising consumer awareness regarding food ingredients and the preference for healthier alternatives will continue to boost the industry’s growth prospects. Alternative and innovative agricultural technologies like hydroponics and vertical farming are expected to be other key catalysts, given their inherent benefits.

Players like Bunge Limited (BG Quick QuoteBG - Free Report) , The Andersons, Inc. (ANDE Quick QuoteANDE - Free Report) and Arcadia Biosciences (RKDA Quick QuoteRKDA - Free Report) are poised to gain from strong end-market demand and their ongoing growth initiatives.

Industry Description

The Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, where income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening — the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.

Trends Shaping the Future of the Agriculture - Products Industry

Solid Demand to Support Industry: Demand for food is directly influenced by population and demographic changes besides income growth and income distribution. Per the United Nations, the global population will rise to 8.5 billion in 2030 and 9.7 billion in 2050. This would lead to a 50% increase in global food demand. In response to growing consumer demand for healthier food alternatives, several agricultural and food-based companies are investing in innovation and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Plus, stable earnings across all cycles are ensured, considering the industry’s products are always in demand, irrespective of the condition of the economy.

Hydroponics & Cannabis Are Key Catalysts: Hydroponics is gaining popularity as it gives growers the ability to regulate better and control nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. It can help produce crops faster with higher yields than traditional soil-based growers. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to a rising shortage of farmland and environmental vulnerabilities. Also, vertical farming is the latest agricultural technology, wherein companies use shelves and artificial light to grow produce, minimizing land and water consumption. Total sales for the hydroponic equipment industry are projected to surpass $16 billion by 2025. Even though the cannabis industry is undergoing a rough patch due to an oversupply, its long-term prospects are intact. In the United States, several states have legalized cannabis for medical or recreational use, representing the largest market in the world. By 2027, spending on legal cannabis is expected to reach $47.3 billion in North America.

Cost-Saving Actions to Aid Margins: Players in the industry are facing rising labor, packaging and distribution costs, among other expenses. Companies engaged in animal products have been facing increasing production costs for a while due to elevated feed ingredient prices. However, feed prices have eased lately. The industry continues to navigate a tight labor market with a spike in wages and higher distribution costs. Recently, industry players have been reporting improvements in the supply-chain issues that have been plaguing them so far. They have been making efforts to bolster their financial conditions, conserve cash and improve profitability by implementing pricing and cost-reduction actions, which are likely to help sustain margins in the future.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #55, which places it in the top 22% of the 251 Zacks industries.

The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks worth considering for your portfolio, let’s look at the industry’s recent stock market performance and valuation.

Industry Versus Broader Market

The Zacks Agriculture – Products industry has underperformed its sector and the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved up 0.4% in the past 12 months compared with the S&P 500’s growth of 15.5% and the Basic Materials sector’s rise of 2.7%.

One-Year Price Performance

 

Industry's Current Valuation

On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 4.86X compared with the S&P 500’s 13.21X. The Basic Materials sector’s trailing 12-month EV/EBITDA is 11.14X. This is shown in the charts below.

Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)

Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)

Over the last five years, the industry has traded as high as 9.52X and as low as 3.10X, with the median being 6.43X.

3 Agriculture - Products Stocks to Watch

Bunge: The company’s shares have gained 12% since it announced entering a definitive agreement with Viterra Limited in June 2023. This merger will create an innovative global agribusiness company with an enhanced global network and grain and softseed handling capacity. With a diversified mix across geographies, seasonal cycles and crops, the company will be better positioned to manage risk and increase resiliency. The company announced in October that its shareholders have forwarded their approval. The merger is expected to close in mid-2024, subject to satisfaction of customary closing conditions. BG also recently provided an upbeat outlook for 2023 in its third-quarter 2023 results. In the Agribusiness segment, improved results in Processing are expected to drive results and Refined and Specialty Oils are expected to surpass their record results last year, backed by strong food and fuel demand. The company’s efforts to boost its footprint, build relationships with farmers and end consumers and strengthen its digital capabilities will boost growth. The company’s shares have gained 5.5% in the past year.

Bunge is an integrated global agribusiness and food company covering the farm-to-consumer food chain. The Zacks Consensus Estimate for this St. Louis, MO-based player’s ongoing-year earnings has moved up 5% to $12.80 in the past 60 days. BG has a trailing four-quarter earnings surprise of 16.61%, on average. It currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price & Consensus: BG

Andersons: The company’s acquisition of ACJ International, a pet food ingredient supplier, contributed to its recently reported third-quarter 2023 results. The buyout is in sync with ANDE’s strategy to grow in the premium pet food ingredient industry.  Backed by its strong cash flow, It is continuing to add to its core grain and fertilizer verticals, including a greater focus on renewables and opportunities in renewable diesel feedstocks. In the third quarter, the renewables segment delivered a record performance, and the current margin outlook remains strong. Production facilities have been operated efficiently with improved ethanol yield and lower operating costs, which is expected to boost margins. In the Trade business, the assets are well-positioned to accumulate, condition and store large quantities of grain and gain from the large and ongoing U.S. harvest. The segment will also benefit from drying income due to receipts of higher moisture corn. Trade is also receiving increased storage rates. The company’s shares have gained 37% in a year.

Maumee, OH-based Andersons operates in trade, renewables and plant nutrient sectors in the United States and internationally. The Zacks Consensus Estimate for ANDE’s earnings for fiscal 2023 has moved up 5% in the past 60 days. The company has a trailing four-quarter earnings surprise of 32.8%, on average. ANDE currently carries a Zacks Rank #2.

Price & Consensus: ANDE

Arcadia Biosciences: The company continues to make solid progress in executing Project Greenfield, its three-year strategic plan to drive growth and profitability. The company has been streamlining its business to focus on higher-margin brands while aggressively managing costs. Aided by its efforts, the company has delivered positive gross profit from continuing operations for seven consecutive quarters and reported the lowest total SG&A expenses in four years in the third quarter of 2023. The GoodWheat range has been supporting revenue growth for the company. RKDA had earlier entered the baking mix category with the launch of better-for-you pancake and waffle mixes in July. GoodWheat pasta and pancake mixes and Zola coconut water were added to more than a thousand stores of distribution in the third quarter. The company has now expanded to a third category with GoodWheat Mac & Cheese, a family household staple representing more than $1.1 billion in sales. Better-for-you brands make up nearly 20% of the category and are growing faster than traditional brands. RKDA plans to ramp up innovation for both GoodWheat and Zola coconut water and add categories through acquisition. The company’s shares have lost 78% in a year but are expected to trend up eventually, backed by the tailwinds mentioned above.

Arcadia is a producer and marketer of innovative, plant-based health and wellness products. RKDA used non-genetically modified advanced breeding techniques to develop its proprietary innovations, which it is now commercializing by selling seed and grain, food ingredients and products, hemp extracts, trait licensing, and royalty agreements. In the past 60 days, the Zacks Consensus Estimate for this Davis, CA-based player’s fiscal 2023 earnings has remained stable at a loss of $11.05 per share. RKDA has a trailing four-quarter earnings surprise of 39%, on average. It currently carries a Zacks Rank #3 (Hold).

Price & Consensus: RKDA