Why ag stocks are looking attractive

Market Updates

Publish date: 31 March 2022

Tui Eruera, Founder and CEO Jaaims

The agriculture sector can easily be overlooked by investors, but not anymore. Tui Eruera, CEO and Founder of Jaaims, a trading platform that uses sophisticated algorithms to help investors select and time trades, explains why ag stocks are garnering plenty of attention.*

Australia is blessed with high levels of food production. In fact, we are a net exporter of food. Following a bumper season, the value of farm production nationally is set to reach a record $81 billion in 2021/22. Of this total, around $64 billion will be exported[1].

While that’s good news for our farmers and farm-related industries, it also has implications for investors.

Global food shortage set to worsen

Living in a food-rich nation like Australia, it can be hard to imagine food shortages. However, the World Economic Forum[2] (WEF) warns that two years of the COVID-19 pandemic have taken a considerable toll on food systems worldwide.

Global food prices spiked to an all-time high in February 2022, jumping 20% year-on-year[3]. The shortage could become even more pronounced as a result of the conflict in Ukraine.

Together, Russia and Ukraine account for 12% of food calories traded worldwide – particularly staples such as wheat and corn. However, there is considerable uncertainty about how Ukraine will manage a harvest this year. The Food and Agriculture Organisation of the UN[4] suggests that up to one-third of land under winter cereal, maize and sunflower seed production in Ukraine will either remain unharvested in 2022, or will not be planted in the spring.

This has serious ramifications. Ukraine accounts for 40% of global exports of sunflower oil, and already the price of sunflower oil has escalated 64% in recent weeks[5].

Another issue is also at play. An acute global shortage of fertilisers is driving the cost to new highs. This is expected to see farmers ration the use of fertilisers, which has the potential to adversely impact crop yields.

The upshot for Australian investors

As global food prices rise, it may become more lucrative for Australian farmers to sell their produce offshore rather than in domestic markets. While we’re lucky in Australia to have an abundance of food, this may drive up prices at the supermarket.

For investors however, it can make the agricultural sector – both locally and overseas, very attractive.

It’s interesting that Jaaims, which accesses 250 different data sets, has been opening positions in the agricultural and food sectors since the final quarter of 2021 as part of its AI active long strategy.

To date this has seen Jaaims notch up impressive results including 60.39% gains on CF Industries (CF: NYSE), a leading producer of agricultural fertilisers; and a 26.41% gain on Kraft Heinz (KHC: NYSE) a multinational food company.

Of course, past returns are no guide for the future. Nonetheless, the theme of food and agriculture looks set to be relevant to investors for at least the next 12 months.

This is not about fear mongering or capitalising on the dreadful events taking place in Ukraine. The factors driving food shortages are varied and complex, and have been coming together over the longer term.

The key point for investors is that the ag sector is worth a look. One of the key attributes of Jaaims is that it eliminates the bias of human emotions from the decision-making process. And by doing so, Jaaims has achieved robust gains in a sector that many investors may give little more than a passing glance.

[1] https://daff.ent.sirsidynix.net.au/client/en_AU/search/asset/1033304/0

[2] https://www.weforum.org/agenda/2022/03/global-food-security-challenges-solutions/

[3] https://www.ifpri.org/blog/covid-19-and-rising-global-food-prices-whats-really-happening

[4] https://www.fao.org/3/cb9171en/cb9171en.pdf

[5] https://www.reuters.com/business/energy/ukraine-sunflower-scarcity-boon-olive-oil-hard-swallow-some-2022-03-22/

*Any advice provided is general in nature and does not take into account the viewer’s specific needs and circumstances. Returns quoted are based on past performance and are not necessarily indicative of future returns. You should consider your own financial position, objectives and requirements to determine the type of advice and products to best suit your needs. Jaaims Australia is an Authorised Representative of Jaaims Technologies, AFSL 519985.

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