Extreme weather conditions make feeding the world increasingly challenging
Agricultural supply is highly weather dependent and especially vulnerable. Of late, there has been no shortage of headwinds impacting food supply. For instance, heat waves and droughts are taking a toll across Europe, China, and India.
The recent heat waves in Europe, where temperatures soared above 40 degrees Celsius in France, Greece, Spain, and Portugal have threatened the seasonal harvest, with the European Union forecasting that harvests are down between 12-16 % for maize, soyabeans and sunflowers.
In China, the country is experiencing persistent searing heat in central and southwestern areas, and flooding in the northeast. A crippling drought exacerbated by a record heat wave has spread across half of the country. This summer has been the hottest in China since 1961, and sweltering conditions are causing waterways to literally evaporate away.
The worst-affected area is the Yangtze River basin, stretching from coastal Shanghai to Sichuan province in China's south-west, and these drought conditions are hurting China’s rice crops. China produces more than 95% of the rice, wheat, and maize it consumes, hence a reduced harvest could mean increased demand for imports in the world’s most populous country — putting further pressure on global supplies already strained by the conflict in Ukraine.
Speaking of rice crops, India, which accounts for 40% of global rice exports has also been faced with a lack of rainfall in West Bengal and Uttar Pradesh. The country’s total rice planted area has shrunk by 13% due to lack of rainfall. There are worries that a drop in rice production will complicate India’s inflation fight and trigger restrictions on exports, given that the government has already curbed wheat and sugar exports to safeguard food security and control local prices.
Consumers are feeling the pain
Extreme weather conditions due to the effects of climate change have come at a huge cost to consumers worldwide. Consumers, already feeling the pain of 18 months of inflation due to supply chain snags and Russia’s invasion of Ukraine, are now having to pay even more to keep themselves fed amidst many food security concerns. Moreover, as the planet heats up, weather patterns will continue to change, and this would be a growing drag on agricultural output in years to come.
With food security concerns growing, investors may be interested to seek out various companies engaged in agricultural activities, and the VanEck Agribusiness ETF (NYSE:MOO) is one product they should consider. Based on our target price of USD 135 for MOO, it translates to an upside potential of about 51%, based on the closing price of USD 89.70 on 1 September 2022.
Not to mention, this is the largest and most liquid pure equity-underlying ETF that provides a global agriculture exposure. The fund tracks the performance of the MVIS Global Agribusiness Index, which comprises companies involved in agri-chemicals; animal health; fertilizers; seeds and traits; farm and irrigation equipment and farm machinery.
Table 1: Top ten holdings of MOO
|
Rank |
Holding Name |
Net Assets (%) |
|
1 |
Deere & Co |
8.93 |
|
2 |
Zoetis Inc |
8.11 |
|
3 |
Nutrien Ltd |
7.19 |
|
4 |
Corteva Inc |
6.41 |
|
5 |
Bayer AG |
5.94 |
|
6 |
Archer-Daniels-Midland Co |
5.92 |
|
7 |
Tyson Foods Inc |
4.64 |
|
8 |
The Mosaic Company |
3.77 |
|
9 |
Sociedad Química y Minera de Chile |
3.66 |
|
10 |
CF Industries Holdings |
3.48 |
|
Source: VanEck, iFAST Compilations Data as of 1 September 2022 |
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Related article: As the Russia-Ukraine war brings about a global food crisis, here’s an ETF that will benefit
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