In This Article:
Declining agriculture commodity prices, and elevated input and labor costs created a difficult backdrop for agriculture stocks in 2024. However, demand from growing consumer awareness for healthier, natural food products provided support to the sector. The sector’s focus on innovation from production to processing, developing high-quality ingredients while reducing the use of chemicals and pesticides and wastage, is bearing fruit.
The adoption of alternative agricultural technologies like hydroponics and vertical farming have gained traction as efficient and sustainable agriculture practices. Investments in acquisitions, joint ventures, expansions and technology are expected to enhance the performance of the agricultural companies. Players like Cal-Maine Foods, Inc. CALM, Mission Produce, Inc. AVO, Calavo Growers, Inc. CVGW and Cadiz Inc. CDZI are poised well to gain from the strong demand in their end markets and ongoing growth initiatives.
Near-Term Headwinds to Counter
The USDA projects a net farm income of $140.7 billion for 2024, indicating a decline of 4.1% from that reported in 2023. Net cash farm income is expected to decrease 1.1% year over year to $158.8 billion in 2024. Total crop receipts will decline 9.2% due to lower receipts for corn and soybeans, as lower prices for both should negate gains from higher sales volumes.
Weak outlook for commodity prices, rising input costs, trade uncertainties and increasing operational expenses have weighed on most agricultural stocks' performances this year.
Agriculture Stocks’ Long-Term Story Remains Intact
Solid Demand for Food to Support Growth: The agriculture industry has been gaining from the growing consumer demand for healthier food. 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, supporting the agriculture sector’s margin.
Several agricultural and food-based companies are expanding their product lines to offer new, nutritious ingredients to meet the growing demand for healthier food options.
Focus on Innovation & Investments to Boost Demand: Agriculturists are focused on using organic production techniques, and reducing the use of chemicals and pesticides.
Farmers increasingly rely on advanced technology, smart farming solutions and mechanization to run their operations. Thus, agricultural equipment manufacturers are launching products with advanced technologies and features to keep up with customers' evolving demands. Precision agriculture technology is gaining popularity, enabling farmers to increase yield with reduced input costs and sustainability benefits.
Advances in grain handling and expanded storage capacity are expected to boost the agriculture sector. Alternative agricultural technologies like hydroponics is gaining popularity for its ability to control nutrient delivery, environment and pests, resulting in faster crop production and higher yields. Vertical farming, which is the latest agricultural technology, wherein companies use shelves and artificial light to grow produce, minimizing land and water consumption, is also quite in demand.
The players are pursuing actions like forming joint ventures and making acquisitions to bring premium ingredients that cater to the growing demand for healthy products.
Despite the current industry-wide challenges, few agriculture stocks have countered the pressures and are expected to deliver improved performances in 2024. We have taken the help of the Zacks Stocks Screener to shortlist stocks that currently carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) or have upbeat earnings estimates for their ongoing years. These stocks have also yielded positive price performances in the past six months.