Farm On The Stock Market, And Increase Your Profits

While food and agricultural stocks are often overlooked as investments, many companies offering these products represent excellent value for money. Glenneis Kriel asked a number of investment officers about the opportunities available, and what advice they had for would-be investors.

- Andrew Dittberner, David Lerche, & Nicolaas Hanekom

Traditionally, agricultural and food companies have been treated as the stepchildren of the stock market. Today, however, global supply constraints, combined with rising demand for food and technological developments, have turned many of these companies into attractive components of a well-diversified investment portfolio.

According to Andrew Dittberner, chief investment officer at Old Mutual Private Client Securities, annual shareholder returns for listed energy companies and information technology companies since 2004 have averaged 13% and 10% respectively, whereas returns of more than 100 global listed food and agri companies have averaged about 17% a year. The outlook for the sector is also bullish, as its long-term dynamics are supported from both the demand and supply sides.

“Agricultural commodities are essentials used as food, feed and fuel, and the demand for each of these is bound to increase. On the supply side, both arable land and water are becoming scarcer, which in turn will result in an increased demand for livestock feed,” he says.

TOP AGRI STOCK PICKS

Dittberner differentiates between the commodity derivatives market and the equity market. Agricultural producers, users and investors use the commodity derivatives market, such as Safex, to manage their exposure to prices they may receive or pay for commodities.

Investing in agriculture through the equity market, however, gives an investor exposure to the end-business, the value of which is related to the future profitability of the venture.

He identified Atlas Copco, BASF SE, Deere & Co, Ecolab, Mondi, Unilever, Archer Daniels, Tyson Foods, Zoetis and Agco Corp as some of the companies that have performed well in recent times, and singled out Nestlé and AB Inbev as his top picks.