Topic: ETFs

Agriculture ETFs: What you need to know about these investments

agriculture ETFs

Investing in agriculture ETFs could be a smart move if you choose the right investments for the right reasons

An ETF investment can be a great low-fee way to hold shares in multiple companies with a single investment.

There are even ETFs that are involved in the many aspects of agriculture. We discuss these more below.

What you need to know about agriculture and agriculture ETFs

One of the main reasons why prices of many agricultural commodities have risen is that consumers in developing countries are eating more and higher quality food.

For example, rising meat consumption (especially pork) in developing nations puts pressure on grain prices through the use of grain for animal feed; it takes an average of five kilograms of grain to produce one kilogram of meat.

As they grow wealthier, developing-world consumers also buy more processed foods, and this too requires meat and dairy inputs.


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Ethanol pushes up the prices of corn and other crops

Another factor putting upward pressure on food prices is rising ethanol production. Ethanol production has boomed in the U.S. since the late 2000s, largely due to heavy government subsidies.

As a result of the jump in ethanol production, less corn is available for food or livestock feed. The resulting higher corn prices prompt farmers to plant less wheat and other crops in favour of corn. That drives up prices of other crops, as well.

The World Bank has called for an end to ethanol subsidies. In June 2011, the U.S. Senate voted overwhelmingly to eliminate billions of dollars in support for the U.S. ethanol industry.

Industrialization absorbs farmland & spurs food demand

Industrialization moves more agricultural land around cities out of production. It also consumes scarce water resources that could be used for irrigation. That generally leads to a decrease in food production.

At the same time, rapid industrialization is also usually accompanied by rising incomes and increased demand for more and better-quality food.

Profit from expanding agriculture with the right agriculture ETFs

It’s likely that crop prices will continue to fluctuate—both from year to year, due to unpredictable factors, such as weather, pests, disease or even speculative trading, or in the long term, due to swings in supply and demand.

While it’s not certain that food prices will rise, it’s a safe bet that overall food production and consumption will continue to increase.

That’s why we think the best way to profit is through shares of well-established companies with a broad base of operations that can offset the wide fluctuations of commodity prices, or in exchange-traded funds (ETFs) that hold those companies.

Below is an example of an agriculture ETF.

The VanEck Vectors Agribusiness ETF, symbol MOO on the NYSEARCA, aims to track the MVIS Global Agribusiness Index, after trust expenses. The index includes agricultural companies from around the world.

The index is intended to track the overall performance of companies involved in: (i) agri-chemicals, animal health and fertilizers, seeds and traits, (ii) farm/irrigation equipment and farm machinery and/or (iii) agricultural products (including grain, tobacco, meat, poultry, and sugar), aquaculture and fishing, livestock plantations, and trading of agricultural products.

Two other agriculture ETFs

PowerShares DB Agriculture Fund ETF, symbol DBA on New York, is based on an index made up of futures contracts on some of the most liquid and widely traded agricultural commodities, such as corn, soybeans, wheat, cattle and hogs.

iShares Global Agriculture Index ETF, symbol COW on Toronto, aims to track the performance of the Manulife Asset Management Global Agriculture Index.

Agriculture ETFs: Many ETFs hold some agriculture stocks

iShares Canadian Select Dividend Index ETF (Toronto symbol XDV) holds high-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio.

This ETF holds Ag Growth International Inc.

Ag Growth International (symbol AFN on Toronto) is a leading maker of portable and stationary grain-handling, storage and conditioning equipment. The company is based in Winnipeg.

Ag Growth sells its products through dealers and distributors in Canada and the U.S., as well as in Russia, Ukraine and elsewhere overseas.

The company started out as an income trust. It first sold units to the public at $10 each and began trading on Toronto in May 2004. In June 2009, it converted to a corporation and changed its name from Ag Growth Income Fund to Ag Growth International.

The company’s main brands include: Batco (crop conveyor belts), Wheatheart Manufacturing (grain-handling equipment), Westfield Industries (portable augers to transfer grain), Grain Guard and Keho (aeration and grain-drying equipment), Twister (grain bins), and Mepu (grain-drying systems).

Do you have an interest in agriculture ETFs? Are you already holding ETFs with agriculture companies in them? Share your story with us in the comments.

This post was originally published in 2015 and is updated regularly.

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