by Even before the coronavirus pandemic hit in 2020, the agriculture industry was dealing with several headwinds, from hurricanes and poor planning that disrupted crop growth cycles to the effects of retaliatory tariffs that cut exports. When Covid hit, it accentuated existing problems and introduced new ones, including supply and demand shocks to the food system and labor shortages. Then Ukraine’s attack dealt another blow that rattled global grain markets. These issues have highlighted the huge need for investment in agriculture and especially in technology to improve industrial efficiency. “There’s a lot of traction in this space, and since the beginning of the pandemic, you’ve had a series of events focusing on food security,” said Kristen Owen, executive director and senior analyst covering sustainable growth and resource optimization. Oppenheimer. There are ways to play the agtech space for retail investors looking to expand their portfolios, include recession-safe investments and profit from an uptrend, analysts say. It may be best to focus on large, established companies that have invested in innovation themselves and acquired smaller companies that are driving the industry forward. ‘Massive opportunity’ “It’s a massive opportunity, but it’s gotten a lot harder to get capital, especially this year,” Owen said. Deals and venture capital investments have grown since 2020. That year, venture capital made $3.4 billion in 422 deals, double the $1.7 billion invested a year earlier, according to Crunchbase data. In 2021, even more money was used to fund agritech startups, with 440 deals and $4.9 billion. This year, investments have slowed down a bit. According to Crunchbase, as of Oct. 17, agtech has seen 321 deals and nearly $3.5 billion. That’s because the stock market has fluctuated all year but remained in a bear market – not a good time to invest in an IPO. According to data from Renaissance Capital, last year was one of the busiest IPO markets in two decades. That has dried up this year — the third quarter was one of the slowest in decades — and 2022 is set for the lowest return in more than 30 years, the company said. Rising interest rates also weigh on companies that need loans to grow. Using acquisitions for development A few major players in the industry have shown evidence of investing in innovative technology and buying smaller companies. “Big conventional agriculture has been investing in smaller startups, and that’s helping to drive portfolio development,” said Steve Hansen, managing director and equity analyst at Raymond James. “There are a number of ways to play smaller, nimbler companies that are growing faster, but this is a tougher environment for them right now.” Ag is one of the few where we’re confident they can maintain earnings power through 2023.” Managing Director and Senior Analyst, Oppenheimer Kristen Owen One example is Deere & Co, an agricultural production company and one of Owen and Hansen’s top picks. In 2011, the company completed to become a majority shareholder in Austrian battery company Kriesel Electric. Kriesel’s advanced battery technology will help Deere develop off-road vehicles — such as tractors and other agricultural machinery — and move toward a zero-emissions future. The deal was valued at $249.2 million. gives these new technologies a chance,” Owen said. Last year, Deere also acquired Bear Flag Robotics , a Silicon Valley agricultural technology startup developing autonomous farm equipment, for $250 million. “As our customers face challenges, associated with a growing world with limited resources, it is imperative that we continue to deliver solutions that enable them to do more with less,” said a Deere spokesperson. “Automation and autonomy and innovations in sustainable land use are critical steps forward, creating opportunities for them to open more sustainable and profitable operations. Investing in partners who can help us drive these solutions will continue to be a priority for us.” Deere’s stock is up more than 11% this year, but it’s trading about 17% below its all-time high. AGCO, which manufactures agricultural machinery, has also made several investments or acquisitions in the farm’s new technology in recent years. In May, it acquired JCA Industries, a company that develops autonomous software for agricultural machinery. This followed its December 2021 deal to buy Appareo Systems, another software engineering, hardware development and electronics manufacturing company. In 2021, AGGO also acquired the precision animal production company Farm Robotics and Automation. AGCO’s share has fallen by less than one percent since the beginning of the year. One of Owen’s top picks in the industry is Trimble, a midsize software company with a precision agriculture offering that uses technology like GPS-enabled tractors and satellite imagery to help farmers use their fields efficiently. The company has also been involved in the trend of financing new technology – it invested $61 million in Monarch Tractor, a developer of autonomous tractors with CNH Industrial. Trimble’s stock is down about 36% since January. Corteva is Hansen’s top pick, with shares up more than 33% since January. In September, the agricultural company bought the Spanish microbiological technology company Symborg, which manufactures biostimulants and biofertilizers for a wide variety of crops and agricultural systems that improve results. “They really are at the forefront of innovation, either internally or through acquisition,” he said. Investment incentive Of course, high inflation has weighed on the US economy and prompted the US Federal Reserve to raise interest rates aggressively, raising fears of a recession next year. While this creates headwinds for many industries, agriculture is somewhat removed from these pressures because food and organic materials are important in other industries, such as corn and soybeans for ethanol. “Astronauts usually operate almost according to their own biorhythm,” Hansen said. Some inputs, such as fuel costs and commodity prices, are economically sensitive, but the actual supply and demand fundamentals that drive crop prices are independent of the actual business cycle, he added. In addition, grain inventories are at or near decade lows, a problem that signals the need for further growth. For this reason, his company is very positive about the health and potential of the agricultural industry next year. According to Owen, certain pockets of the industry also have tailwinds that should benefit them in the coming years. “It’s certainly the case that we’ve had about a decade of underinvestment in the agricultural economy and now that we’re experiencing a confluence of events that will support that economy and really encourage investment in this area that should really benefit investors,” he said. “Ag is one of the few where we’re confident they can sustain earnings power through 2023.” This includes sustainability initiatives in the shift from fertilizers and energy to renewable diesel, which requires corn and soybeans. “You have these tailwinds that continue to support this industry that are different from the macroeconomic view,” he said. Looking to the future Given the market for new technologies in agriculture and the number of growing companies, it is possible that a number of companies may go public in the coming years, giving retail investors the opportunity to invest directly. Part of the reason that the space’s public offerings have dried up is due to the weakening of the special procurement market, which has become popular in recent years. Such companies, called SPACs, raise money through an initial public offering and then select a target to go public in a merger. They were common in 2020 and 2021 because it is often an easier way to go public than the traditional IPO process. The market dried up as stocks fell and regulators scrutinized many deals in 2020 and 2021. Now issuance has stalled—no SPACs were issued in July, and SPAC liquidations have topped $12 billion this year. Because of this market, many companies stay private longer, delaying potential public offerings for a few years. “More and more companies are part of this later batch that may go public in 2024 and 2025,” Owen said.
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