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Industry Description
The Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, wherein income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening, the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.
Trends Shaping the Future of the Agriculture - Products Industry
Low Commodity Prices, High Costs Act as Woes: Agricultural commodity prices are being weighed down by ample supply. Players in the industry are facing rising labor, packaging and distribution costs, among other expenses. The industry continues to navigate a tight labor market with a spike in wages and higher distribution costs. They have been making efforts to bolster their financial conditions, conserve cash and improve profitability by implementing pricing and cost-reduction actions, which are likely to help sustain margins in the future.
Solid Demand to Propel Industry Growth: The demand for food is directly influenced by population, demographic shifts and income growth. Per the United Nations, the global population is expected to grow to 8.5 billion in 2030 and 9.6 billion in 2050. This will drive a 50% increase in global food demand. Consumers are now focused on healthier food alternatives. To capitalize on this, several agricultural and food-based companies are investing in innovation and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Given that food remains an essential commodity regardless of the condition of the economy, the industry benefits from stable earnings across economic cycles.
Hydroponics & Cannabis are Key Catalysts: Hydroponics is gaining popularity as it gives growers control over nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. This method enables faster crop growth, with higher yields than traditional soil-based cultivation. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to the shortage of farmland and environmental vulnerabilities. Vertical farming is the latest agricultural technology, wherein shelves and artificial lighting systems are used to grow produce, thereby minimizing land and water consumption. Total sales for the hydroponic equipment industry are projected to reach $67 billion by 2033, at a CAGR of 16.2% over 2024-2033. Spending on legal cannabis is projected to increase at a steady pace each year in North America and reach $57 billion by 2028.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #225, which places it in the bottom 9% of the 246 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few Agriculture - Products stocks that investors can keep an eye on, it is worth looking at the industry’s stock-market performance and valuation picture.
Industry Versus Broader Market
The Zacks Agriculture – Products industry has underperformed its sector and lagged the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved down 12.9% in the past 12 months compared with the Basic Materials sector’s 0.3% decline. The S&P 500 has gained 13% in the same time frame.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 5.98X compared with the S&P 500’s 17.51X. The Basic Materials sector’s forward 12-month EV/EBITDA is 12.83X. This is shown in the charts below.
Over the last five years, the industry traded as high as 10.19X and as low as 3.76X, with the median being 5.72X.
3 Agriculture - Products Stocks to Keep an Eye on
Bunge: The company completed the previously announced sale of its North America dry corn and corn masa milling businesses to focus on other areas of its core business. It had earlier signed a deal to sell its European margarine and spreads business. Bunge is set to close in on its $34 billion merger with Viterra Ltd. The combination of the two agriculture firms is anticipated to create one of the largest crop trading and processing companies globally. Bunge believes that the merger with Viterra is a strategic fit, which should bolster its position in grain exports and oilseed processing in the United States. Furthermore, this enables Bunge to increase its export capabilities and physical grain storage and handling capacity in Australia and Canada, two of the largest wheat suppliers globally.
Bunge is an integrated global agribusiness and food company covering the farm-to-consumer food chain. The St. Louis, MO-based company has a trailing four-quarter earnings surprise of 9.21%, on average. BG currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CalMaine Foods: The company is poised for growth as demand for eggs remains strong, as it is being valued as the cheapest source of high-quality protein and increasingly favored for healthy eating. The preference for specialty eggs (including cage-free eggs) continues to surge, driven by state mandates and consumer preference. Consumers are also willing to pay premium prices for these products. Specialty eggs, thus, remain a focal point for CalMaine Foods’ growth strategy. To address this evolving market, Cal-Maine Foods has been strategically scaling its cage-free operations through a combination of organic investments and acquisitions. The company has been upgrading existing facilities and converting conventional housing to cage-free environments. It is also expanding its product portfolio to include value-added egg products. This is evident in its investment in Meadowcreek Foods, LLC for hard-cooked eggs and Crepini Foods, a new venture offering egg products and prepared foods. The company also recently acquired Echo Lake Foods, which specializes in ready-to-eat egg products and breakfast foods.
Ridgeland, MS-based CalMaine Foods is the largest producer and distributor of fresh shell eggs in the United States. The Zacks Consensus Estimate for CALM’s earnings for fiscal 2025 indicates year-over-year growth of 299.5%. CALM currently carries a Zacks Rank of 3.
Hydrofarm: The company is focused on streamlining operations, reducing costs and improving efficiencies. Major initiatives include narrowing the product and brand portfolio, relocating and consolidating certain manufacturing and distribution centers and selling assets related to the production of certain durable equipment products. Its strategic focus on proprietary brands continues to deliver mix benefits and operational efficiencies. The proprietary brand sales mix increased to 55% in the first quarter of 2025 compared with 52% in the fourth quarter of 2024, led by its consumable products, which drove substantial sequential improvement in the adjusted gross margin. The company also delivered significant savings in adjusted SG&A expense, marking the eleventh consecutive quarter of meaningful year-over-year expense reductions. HYFM has also been expanding its reach to serve non-cannabis controlled-environment applications, including food, floral and lawn and garden.
Shoemakersville, PA-based Hydrofarm engages in the manufacturing and distribution of controlled-environment agriculture equipment and supplies in the United States and Canada. The Zacks Consensus Estimate for HYFM’s fiscal 2025 bottom line is pegged at a loss of $10.36 per share, indicating an improvement from the loss of $14.51 per share reported in 2024. HYFM currently carries a Zacks Rank of 3.
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This article originally published on Zacks Investment Research (zacks.com).
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