Investing in Natural Resources: Welcome to the Age of Agribusiness

The Resurgence of Agribusiness in Challenging Economic Times

In recent years, the natural resource sectors have encountered a period of relative weakness, primarily driven by macroeconomic factors such as high inflation and rising interest rates.

However, with the current evolving economic landscape, characterized by decreasing rates from the Federal Reserve and mounting concerns about a potential recession, this sector has come back into the spotlight for investors.

Specifically, a long-forgotten segment of the stock market has begun to emerge: agribusiness.
But what exactly is agribusiness, and why might it represent a promising opportunity?

Understanding Agribusiness

Natural resources are raw materials originating directly from nature, encompassing a wide array of assets, including metals, minerals, wood, oil, and agricultural products.
When discussing agribusiness, we refer to the latter, encompassing all economic activities related to agriculture.

This includes not only traditional agricultural production but also all phases of the agri-food supply chain.
It may seem unusual since agriculture conjures images of cultivated fields, but agribusiness also involves significant advancements in services and technologies related to agriculture.

Challenges and Innovations

As the global population is projected to exceed 9.7 billion by 2050, necessitating a 70% increase in food production, the development of this sector becomes crucial.

Currently, about 30% of the produced food is wasted, while climate change could reduce global agricultural production by 20% by 2050.
Developing countries like China are expected to see a doubling of meat consumption by 2050, intensifying pressure on the food supply chain.

Innovations such as precision agriculture could enhance yields by 25%, making agribusiness essential for meeting growing demand amidst climate and logistical challenges.

Investment Opportunities: Monitoring ETFs

With decreasing interest rates, this sector may be set for a resurgence.
Many firms in natural resources are heavily indebted, and lower rates could alleviate financing costs.

In a potential recession, investors tend to seek refuge in defensive sectors like agribusiness, which typically show less volatility and provide stable returns during economic uncertainty.

One notable ETF in this space is the iShares Agribusiness ETF (AGF), which provides exposure to leading global companies within the agribusiness sector.

Among the major holdings in this fund are companies like Deere & Company, a leader in agricultural and construction machinery production, including tractors and harvesters.
Second is Corteva Agriscience, specializing in crop protection solutions and advanced seed production, while Nutrien, a major global supplier of crop nutrients, particularly fertilizers such as potassium and phosphate, rounds out the top three.