Even before the coronavirus pandemic hit in 2020, the agriculture industry faced a number of headwinds, from hurricanes and poor planning disrupting crop growth cycles to the impact of retaliatory tariffs. reducing exports. When Covid hit, it exposed existing problems and brought new ones, including supply and demand shocks in the food system and labor shortages. Then, the invasion of Ukraine dealt another blow, disrupting world grain markets. These problems have highlighted a huge need for investment in agriculture and more particularly in technology to improve the efficiency of the industry. “There’s a lot of appeal for this space and more and more since the start of the pandemic, you’ve had a series of events that focus on food safety,” said Kristen Owen, executive director and Senior Analyst for Sustainable Growth and Resource Optimization at Oppenheimer. For retail investors who want to expand their portfolio, include recession-proof investments and take advantage of an emerging trend, there are ways to play in the agtech space, analysts say. It might be best to focus on large, established companies that have themselves invested in innovation and acquired smaller companies that are pushing the industry forward. ‘Huge opportunity’ “It’s a huge opportunity, but access to capital has become much more difficult, especially this year,” Owen said. Venture capital deals and investments in the space have increased since 2020. That year, venture capital invested $3.4 billion in 422 deals, double the $1.7 billion invested a year earlier, according to Crunchbase data. In 2021, even more money was poured into funding ag-tech startups, with 440 deals and $4.9 billion. This year, investment has slowed slightly. Through Oct. 17, there have been 321 deals and nearly $3.5 billion invested in agtech, according to Crunchbase. This is because the stock market has been swinging all year but still in a bear market – now is not a good time to invest in a company’s IPO. Last year was one of the busiest IPO markets in two decades, according to data from Renaissance Capital. That dried up this year — the third quarter was one of the slowest in decades — putting 2022 on pace to generate the least revenue in more than 30 years, the company said. Rising interest rates are also weighing on businesses that need to borrow money to grow. Using M&A to Scale There are a few big players in the industry with a track record of investing in innovative technology and acquiring small companies. “Big traditional agriculture has been investing in smaller startups and that’s helping shift portfolios,” said Steve Hansen, managing director and equity analyst at Raymond James. “There are a lot of ways to play with smaller, more nimble companies growing faster, but it’s a tougher environment for them right now.” Agriculture is one of the few where we are confident it can maintain its earnings power through 2023.” Executive Director and Principal Analyst, Oppenheimer Kristen Owen An example is Deere & Co, an agricultural manufacturing company and l one of Owen and Hansen’s best picks. Last year, the company became the majority shareholder of Kriesel Electric, an Austrian company that manufactures batteries. Kriesel’s advanced battery technology will help Deere develop off-road vehicles, such as tractors and other agricultural equipment, and move toward a zero-emissions future in these The deal was worth $249.2 million. “You’re seeing a bit more of these big companies dipping their toes into the risk space and giving these new technologies a shot,” Owen said. Last year, Deere also bought Bear Flag Robotics. , a Silicon Valley agricultural tech startup that develops autonomous agricultural equipment, for $250 million. “As our customers face the challenges of having to feed a growing world of limited resources, it’s imperative that we continue to provide solutions that allow them to do more with less,” a Deere spokesperson said. Automation and autonomy as well as innovation in sustainable land management are essential steps to achieve this, creating opportunities for them to unlock a more sustainable and profitable operation. Investing in partners who can help us move towards these solutions will continue to be a priority. for us.” Deere’s stock is up more than 11% this year, but is trading about 17% below its all-time high. AGCO, a manufacturer of agricultural machinery, has also made several investments or acquisitions in recent years in new technologies in the space. In May, it acquired JCA Industries, a company that develops autonomous software for agricultural machinery. This follows its agreement in December 2021 to acquire Appareo Systems, another company software engineering, hardware development and electronics manufacturing.In 2021, AGGO also acquired Farm Robotics and Automation, a precision farming company.AGCO stock is down less than 1% since the start of One of Owen’s top picks in the space is Trimble, a mid-cap software company that has a precision farming offering that uses technologies such as tractors. GPS-enabled rs and satellite imagery to help farmers make efficient use of their fields. The company has also participated in the new technology funding trend – it invested $61 million in Monarch Tractor, a developer of self-driving tractors, along with CNH Industrial. Trimble shares are down about 36% since January. Corteva is a top pick for Hansen, and its shares have gained more than 33% since January. The agricultural company in September bought Symborg, a Spanish microbiological technology company that manufactures biostimulants and biofertilizers for many types of crops and agricultural systems that improve results. “They’re really on the cutting edge of innovation, whether it’s in-house or by acquisition,” he said. Encouragement to invest Of course, high inflation has weighed on the US economy and prompted the Federal Reserve to carry out aggressive rate hikes, stoking fears of a recession next year. While this presents headwinds for many industries, agriculture is somewhat removed from these pressures due to the importance of food and organic materials for use in other industries, such as corn and soybeans in agriculture. ethanol. “The main engines of space tend to operate almost according to their own biorhythms,” Hansen said. There is economic sensitivity to certain inputs, such as fuel costs and commodity prices, but the actual supply and demand fundamentals that drive crop prices are independent of the actual business cycle, he said. -he adds. Additionally, grain stocks are at or near decade lows, an issue that signals the need for more growth. For this reason, his company is very constructive on the health and potential of the agricultural sector for the next year. Some pockets of the industry are also seeing tailwinds that should benefit them in the years to come, according to Owen. “Certainly we’ve had about a decade of underinvestment in our agricultural economy and now that we’re experiencing a confluence of events that are supporting that economy and really incentivizing investing in this space, that should really benefit investors,” she says. “Agriculture is one of the few where we are confident it can maintain its earning capacity until 2023.” This includes sustainability initiatives in fertilizers and energy transitions to renewable diesel, which require corn and soybeans. “You have these tailwinds that continue to support this industry that are different from the macroeconomic view,” she said. Eyes on the future Given the market for new technologies in agriculture and the number of growing companies, it is possible that a large number of companies will go public in the coming years, giving retail investors a chance to invest directly. Part of the reason public offerings in the space have dried up is due to the decline of the market for special acquisitions, a way to go public that has become popular in recent years. These companies, called SPAC, raise funds through an initial public offering and then select a target to go public by merging. They were prevalent in 2020 and 2021 because it is often an easier way to get listed on the stock market than the traditional IPO process. That market has dried up as stocks plummeted and regulators are reviewing many deals made in 2020 and 2021. Now issuances have stopped – no SPACs were issued in July and SPAC liquidations topped $12 billion dollars so far this year. Because of this market, many companies are staying private longer, pushing potential public offerings back a few years. “There are more and more companies that are in this final tranche that could go public in 2024 and 2025,” Owen said.
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