Amber Waves of Grain Are Up By 28% 

Agriculture fund investors may be making hay. 

With the Strait of Hormuz still closed, the ongoing Russia-Ukraine war and what forecasters are saying is likely to be the worst El Niño on record, crop supply is tighter than usual. As a result, prices are rising for agricultural funds. Because the sector is driven by crop prices, it’s uncorrelated with the rest of the market, and can act as a hedge against possible losses due to a feared artificial intelligence bubble. Investors who missed the boat on energy when the war in Iran began are turning to agriculture funds to leverage market shifts due to the conflict, said Kathy Kriskey, Invesco’s head of alternatives ETF Strategy.

Kriskey said she asked a client who bought into the Invesco DB Agriculture Fund (DBA) at the start of the war what was behind the move. His answer focused on alternative fuels (soybeans can be turned into biodiesel and corn into ethanol), plus the lack of correlation to the broader market, Kriskey said. “Then he ended with, ‘And people have to eat.’”

Reaping Before Sowing 

Usually, investors allocate to agriculture funds when the underlying crop prices start moving higher, said Jake Hanley, CGO at Teucrium. This happened in 2022 when the Russia-Ukraine war sent grain prices soaring: The price moved, and inflows followed. But this year, when the US took action against Iran, inflows came before crop prices moved significantly. About a third of the world’s fertilizer trade moves through the Strait of Hormuz, according to the UN, and while farmers had already bought their fertilizer for the year by the time the war started, it could prove a problem for the next planting season. Farmers will likely use less fertilizer, according to Hanley, which means that crop yields will be smaller, and thus more expensive. “As this continues on through the fall … that’s going to make it a 2027 problem because that input cost goes up,” said Hanley. Those early inflows were likely investors “positioning themselves for a longer-term story relating to fertilizer issues.”  

Agriculture ETFs, by the numbers: 

• The Teucrium Wheat Fund (WEAT) is the best performer so far this year, up almost 28%, with $163 million in net flows and $320 million under management, according to ETF.com. 
• Broad agriculture funds are garnering lower returns than individual crop funds, with the Invesco DB Agriculture Fund (DBA) up about 11% so far this year. 
• Meanwhile, agribusiness funds are up, but not quite as high as crop funds. The VanEck Agribusiness ETF (MOO) is up 17% this year, with almost $319 million in net flows and about $1 billion under management. 

The Grass Is Greener Where You Water It: Agribusiness and agriculture stocks “tend to move very close together since farmers tend to make their planting decisions based on what crop prices are doing,” said Seth Goldstein, a senior equity analyst at Morningstar. “We’ve recently seen crop prices rise, and so that’s been leading to an outperformance of the actual crops versus the agribusiness.”