Investing in Agriculture: Top ASX Agriculture Shares of 2022

Investing in Agriculture: Top ASX Agriculture Shares of 2022

The Australian agriculture industry has boomed in 2022 thanks to strong demand for soft commodities and a record-breaking summer grain crop. The war in Ukraine has contributed to a surge in grain prices, and livestock prices are also up significantly. 

So, how can investors gain exposure to the agriculture sector without buying a farm? One option is to invest in agriculture stocks listed on the ASX.

  • A happy farmers sifts his fingers through grain, indicating a good crop and higher pricesImage source: Getty Images

What are ASX agriculture shares? 

ASX agriculture shares are companies involved in the agriculture sector. This encompasses producers of agricultural commodities such as grains and livestock plus companies that provide goods (such as fertilisers) to the industry. 

Similarly to resource shares, agriculture share prices can be linked to global commodity prices and the whims of the weather. Competitive advantages such as scale, the use of technology, and branding can aid the performance of agriculture companies. 

Why invest in ASX agriculture stocks? 

The outlook for the agricultural sector in FY22 is strong -- farmers harvested a record grain crop over summer and grain prices have been elevated due to the Russia-Ukraine conflict. Cattle and canola prices have also increased sharply, as has the price of agricultural land. 

Investors look to get in on the action via ASX agricultural stocks and exchange-traded funds (EFTs). But investing in agriculture is not without risks -- fire, flood, and drought all threaten the industry at various times. Increased input prices such as the rising fuel cost can eat into profit margins, and geopolitical influences can impact the supply-demand equation

Nonetheless, agriculture traditionally has been seen as a more conservative investment, offering reasonably stable returns over the long term. Although returns may not be as outsized as can occur in other sectors, the risks are lower than for investments such as cryptocurrency. This means the agricultural sector can provide valuable portfolio diversification

5 top agriculture share performers in FY22

  • Nufarm Ltd (ASX: NUF)
  • Graincorp LTd (ASZ: GNC)
  • Elders Ltd (ASX: ELD)
  • Costa Group Holdings Ltd (ASX: CGC)
  • Ridley Corporation Lt (ASX: RIC)

Based on market capitalisation from high to low. Let's break it down even further.

Company Market capitalisation Description
Nufarm Ltd (ASX: NUF) $2.5 billion A crop protection and seed technology company with customers
in more than 100 countries. Its products help protect crops against
weeds, pests, and disease
Graincorp Ltd (ASX: GNC) $2.3 billion Involved in the storage, logistics, marketing, and processing of
grains and oils. Activities are focused on four core grains – wheat,
barley, canola, and sorghum
Elders Ltd (ASX: ELD) $2.2 billion Supplies primary producers with farm inputs. These include physical,
financial, marketing, and advisory solutions required to operate
farming enterprises
Costa Group Holdings Ltd (ASX: CGC) $1.5 billion Grower, packer, and marketer of fresh fruit and vegetables. Produce
includes bananas, berries, grapes, mushrooms, avocados, and citrus fruits
Ridley Corporation Ltd (ASX: RIC)

$543 million 

Provides animal nutrition solutions. The company produces food and
supplements to meet the needs of a wide range of species

Empty heading

Nufarm

Nufarm provides crop protection and seed technology solutions to customers globally. Products including herbicides, insecticides, and fungicides protect crops against weeds, pests, and disease. The business focuses on core crops in key agriculture regions across Europe, North America, and the Asia Pacific. 

Thanks to favourable trading conditions, Nufarm has seen strong demand and increased revenues in the first half of 2022. First-quarter revenues were up 36% on Q1 FY21, and management can see a credible path to target a revenue aspiration above $4 billion by FY26.

Global demand for crop output is expected to increase by 70% by 2050. Much of this growth will need to come from higher yields as available land is expected to increase by less than 5%. Investments in manufacturing and supply chain efficiency have created a growth platform for Nufarm, which delivered revenue growth of 41% between 2017 and 2021. 

Key metrics: 

  • Market cap: $2.5 billion (as of 28 April 2022)
  • Average daily volume: 1.1 million
  • Headquarters: Melbourne, Victoria  

Graincorp

Graincorp is an agribusiness and processing company that manages a wide variety of grains, pulses, and oilseeds. Listed on the ASX in 1998, Graincorp is now the largest grain storage and handling business in east coast Australia and the number one edible oil processor in Australia and New Zealand. The company has a global supply chain of infrastructure assets that store, process, and facilitate the transportation of grains and edible oils. 

Graincorp has upgraded its earnings guidance for FY22. This reflects significant ongoing global demand for Australian grain and oilseeds and favourable planting conditions. 

The company expects FY22 earnings to be in the range of $590 million to $670 million, with profits of $310 million to $370 million. 

Key metrics: 

  • Market cap: $2.25 billion (as of 28 April 2022)
  • Average daily volume: 1.4 million
  • Headquarters: Sydney, New South Wales

Elders

Elders provides farm inputs to Australian primary producers, supporting their needs throughout the production cycle. Elders’ services include finance, banking, real estate services, and wool, grain, and livestock trading. Products include seeds, fertilisers, agricultural chemicals, and animal health products. 

High prices for sheep and cattle have benefitted Elders, and the real estate division is seeing increased turnover and high demand. This is due to a combination of market and seasonal factors and acquisitive and organic growth. 

Elders recorded $2.5 billion in sales in FY21, an increase of 22%. Underlying earnings per share was up 38%. Both sales revenue and underlying earnings have shown consistent growth over the past five years. The favourable commodity price outlook and good seasonal conditions bode well for FY22 results, with Elders expecting to report FY22 earnings at 20%–30% above FY21. 

Key metrics: 

  • Market cap: $2.2 billion (as of 28 April 2022)
  • Average daily volume: $600,300
  • Headquarters: Adelaide, South Australia

Costa Group

Started in the early 1900s as a family-owned fruit shop, Costa Group has since grown into a significant produce supplier, listing on the ASX in 2015. It has approximately 7,000 planted hectares of farmland across Australia and strategic foreign interests, including six blueberry farms in Morocco and four berry farms in China. 

Revenue for the full year ended December 2021 was $1,220.6 million, with net profit after tax (NPAT) of $64 million. The company recently acquired three citrus assets expected to deliver several key benefits, including greater export supply to Asian markets. 

Costa Group builds its business model on optimising a portfolio of integrated farming, packing, and marketing activities. The company aims to be broad enough to mitigate agricultural and market risks while maintaining a strategic focus on high-growth and high-value produce categories. The company is well-placed to capitalise on advances in agricultural technology to make the business more productive and efficient, potentially increasing earnings over the long term. 

Key metrics: 

  • Market cap: $1.52 billion (as of 28 April 2022)
  • Average daily volume: 1.7 million
  • Headquarters: Melbourne, VIC

Ridley Corporation

Ridley provides animal nutrition solutions, manufacturing feeds formulated to maximise animal health and performance. Its products serve a wide range of species, including cows, poultry, horses, sheep, dogs, fish, and native animals. The company delivered improvements in all financial metrics in the first half of FY22. Earnings before interest, tax, depreciation, and amortisation (EBITDA) grew 21% year-on-year to $39.1 million while NPAT was up 124% to $22.6 million. 

Ridley Corporation has reduced its net debt from more than $140 million in FY20 to $17.2 million in 1H FY22. The company is now pursuing a growth strategy through portfolio expansion and innovation. Product premiumisation and a new range of packaged products are expected to contribute to growth in FY22. 

Key metrics: 

  • Market cap: $543 million (as of 28 April 2022)
  • Average daily volume: 400,463
  • Headquarters: Melbourne, VIC

Are ASX agriculture shares right for you? 

Agriculture is not just life-sustaining, it is big business. Many agriculture companies are involved in producing basic food goods, meaning demand for their products is not greatly impacted by economic cycles. These companies can generate significant income when things go right. 

On the other hand, the impact of weather events and variable crop yields can lead to a mismatch between supply and demand. This means income can vary from year to year. 

An investment in agriculture shares is an investment in food and crop production, processing, and distribution. With a limited supply of land and a growing global population, interest in agricultural production is expanding. 

For investors wanting exposure to the sector, the ASX offers a variety of shares through which direct exposure can be gained. 

Where diversification or broad exposure to the sector is desired, investors may want to consider an exchange-traded fund (ETF) such as BetaShares Global Agriculture Companies ETF Hedged (ASX: FOOD).

Last updated May 2022. Motley Fool contributor Katherine O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended COSTA GRP FPO and Elders Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Learn More About Investing with The Motley Fool

Interested in learning more about investing? Then be sure to browse our "Investing Basics" knowledge hub, which we've created to help more people learn about the wonders of investing. It's just our small way of helping make the world Smarter, Happier and Richer.