March 2, 2024

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4 Agriculture Operations Stocks Countering Challenges Facing the Industry

The Zacks Agriculture – Operations industry has been feeling the pinch of the pandemic-led disruptions, including logistical and supply chain issues, and reduced sales among many others. Agriculture, fisheries and aquaculture companies were particularly affected by restrictions on tourism, and closure of restaurants and cafeterias.

Nonetheless, the USDA’s agricultural export projections for fiscal 2021 reflect an increase from the prior estimate, on robust corn and soybean export forecasts. Also, the industry has been steadfast in catering to changing consumer preferences, including the surge in demand for healthier products. Investments in assets and technological capabilities to innovate and serve customers bode well for players like Yield10 Bioscience, Inc. (YTEN), Corteva Inc. (CTVA), Archer Daniels Midland Company (ADM) and Adecoagro S.A. (AGRO).

Table of Contents

About the Industry

The Zacks Agriculture – Operations industry comprises companies that either produce or procure, transport, store, process and distribute agricultural commodities to consumers and ingredients to other parts of the agriculture industry (such as the clothing, animal feed, energy and industrial products’ industries). Some of these players also engage in dairy operations, land transformation activities and the development of food ingredients using gene-editing technology.

The industry encompasses production activities related to traditional farming of crops (such as corn, soybeans, wheat and cotton), and livestock and poultry products (including meat, dairy and eggs). These products are mostly sold at grocery stores or exported overseas. Additionally, these are used as feedstock for other industries. For example, cotton is used in the clothing industry and corn is used in the ethanol industry.

What’s Shaping the Future of Agriculture – Operations Industry

COVID-19 Related Interruptions: The industry participants have been rather stoic in the face of the challenges thrown by the coronavirus outbreak. Like most of the economy, agricultural operations were also affected by layoffs, furloughs, as well as export and import restrictions due to COVID-19. Moreover, the agri-based businesses dumped massive quantities of food and crops in the early stage of the crisis as farmers rely on restaurants for selling their produce. Additionally, there have been increased logistical issues, which have affected the supply chain across all regions. Most companies witnessed disruptions in the supply of agro-food products to markets and consumers, both within and across borders, hurting producers and suppliers. Agriculture, fisheries and aquaculture companies were particularly affected by restrictions on tourism, closure of restaurants and cafeterias. Meanwhile, production and farming continued unabated. Since consumers are largely relying on retail and e-commerce for their food needs, companies have been analyzing purchase and consumption patterns to predict and meet demand. Comfort foods as well as healthy choices, driven by the eating-at-home and in-home baking trends, should result in continued robust demand for flour and baked goods.

Strong FY21 Agricultural Export Projections: According to the USDA, agricultural export projections for fiscal 2021 (ending Sep 30) are $152 billion, indicating an increase of $11.5 billion from the August projection. The key factors aiding export projections for the fiscal year are higher soybean and corn export values. Soybean exports are likely to benefit from higher unit values, strong demand from China, and record volumes. Corn exports are expected to reap gains of reduced competition, higher unit values and volume growth. Additionally, increases in export forecasts for cotton and wheat, as well as unchanged livestock, poultry and dairy export projections are likely to be beneficial.

Growing Organic Demand: The industry is benefiting from an organic movement prompted by consumers’ increasing demand for healthier food. Agriculturists are adapting to organic production techniques and curtailing the use of chemicals and pesticides. Further, innovations in food processing, improved grain handling techniques, larger storage spaces and strong emerging market demand are conducive to the industry’s growth. Healthy eating habits are likely to accelerate the purchase and consumption of alternative proteins. Moreover, focus on nourishment and wellness is pushing microbiome solutions to the forefront.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Agriculture – Operations industry is a 10-stock group within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #190, which places it at the bottom 25% of more than 250 Zacks industries.

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

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for 2021 has declined 2.7%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry vs. Broader Market

The Zacks Agriculture – Operations industry has outperformed the S&P 500 and the Zacks Consumer Staples sector in a year’s time.

The stocks in this industry have collectively gained 24.5% compared with the Zacks S&P 500 composite’s growth of 14.9%, while the sector has declined 2.5% in a year’s time.

One-Year Price Performance

Agriculture – Operations Industry’s Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing Consumer Staples stocks, the industry is currently trading at 17.16X compared with the S&P 500’s 22.86X and the sector’s 19.64X.

Over the last five years, the industry has traded as high as 17.16X, as low as 10.6X and at the median of 14.48X as the chart below shows.


Price-to-Earnings Ratio (Past 5 Years)

4 Agriculture Operations Stocks to Keep a Close Eye on

We have one stock in the Zacks Agriculture – Operations universe currently sporting a Zacks Rank #1 (Strong Buy) and one with a Zacks Rank #2 (Buy). Additionally, we suggest two more stocks with a Zacks Rank #3 (Hold) from the same industry, which investors may hold on to. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s have a look at them.

Corteva, Inc: The stock of this Wilmington, DE-based pure-play agriculture company, which was spun-off from DowDupont on Jun 1, 2019, has gained 6% in the past year. The company is poised to drive above-market growth through its industry-leading product pipeline and rigorous approach to innovation and operating discipline. Despite the pandemic-led volatility, strong price execution in seed, supply chain flexibility and solid market demand for its balanced and differentiated new product portfolios are driving the company’s performance. The Zacks Consensus Estimate for 2021 has moved up by a penny in the last seven days. The stock has declined 85.9% in the past year. The company currently has a Zacks Rank #1.

Price and Consensus: CTVA

Adecoagro S.A.: The Luxembourg-based agro-industrial company in South America engages in farming crops and other agricultural products, dairy operations, sugar, ethanol and energy production, and land transformation activities. The company benefits from the high flexibility of its assets, which is a competitive advantage in the current uncertain market outlook. The company’s flexibility was reflected by its ability to increase the mix of anhydrous ethanol to benefit from its high prices and recovering demand. The company’s Farming & Land Transformation businesses are benefiting from the consolidation of the five-year plan investments made in Crops, Rice and Dairy businesses, along with its focus on efficiencies. The stock carries a Zacks Rank #2 and has declined 48.7% in the past year. The Zacks Consensus Estimate for the company’s 2021 has increased substantially in the past seven days.

Price and Consensus: AGRO

Yield10 Bioscience, Inc: The Zacks Rank #3 agricultural bioscience company is focused on developing new technologies to achieve improvements in crop yield to enhance global food security. The company is on track with the execution of its long-term strategic plans, including the development of Camelina as a commercial crop platform solution. Additionally, internal program testing in corn for the creation of hybrid corn, the recently signed non-exclusive research license with GDM for the evaluation of seed-yield traits in soybean and its 1-for-40 reverse stock split are factors likely to keep the stock going. The Zacks Consensus Estimate for loss for 2021 has been stable in the past 30 days. The stock has declined 41.2% in the past year.

Price and Consensus: YTEN

Archer Daniels Midland Company: The consensus 2021 EPS estimate for this Chicago, IL-based leading agricultural products company has remained unchanged in the past 30 days. The company’s leadership in key global trends like flexitarian diets, nutrition and sustainable materials has been a contributor to its momentum. Additionally, its focus on making investments in assets and technological capabilities to serve customers efficiently is likely to be a key growth driver. Its Readiness program, positive cash flow and solid performance at the Nutrition unit have been aiding results. Moreover, the company remains on track with its Strive 35 sustainability goals and probiotics expansion. Aided by these initiatives, management anticipates a sturdy fourth quarter and sustained momentum for 2021. This Zacks Rank #3 stock has gained 15.3% in the past year.


Price and Consensus: ADM


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Metabolix, Inc. (YTEN): Free Stock Analysis Report
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Archer Daniels Midland Company (ADM): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.