- Agriculture is a crucial industry but may not fit your portfolio.
- Agricultural ETFs either track food and farm companies or baskets of commodities through futures contracts.
- Agricultural ETFs often carry high expense rates and many have limited liquidity.
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ETFs make investing in a wide range of assets possible through a single security. These securities can be vast and span the entire market or narrow enough for just one sector or industry. Some sectors are more overlooked than others, and ETFs for agriculture are some of the more obscure securities in the market.
But are these ETFs worth a closer look? This article will discuss how agricultural ETFs work and list some options.
What Are Agriculture ETFs?
Is there an agriculture ETF?
Yes, there are plenty. Agriculture is one of the most important industries in the world since it's hard to have a functioning society without a food supply. Agriculture companies are involved with growing raw ingredients like wheat and sugar (as well as several non-food commodities), raising livestock like cows and pigs, operating forestry and fishing businesses and making products like fertilizers, pesticides and farm equipment.
The vast agriculture industry contains plenty of ETFs that have sprung up to provide exposure to the sector. These securities range from broad-based ETFs holding various agriculture stocks to narrow thematic funds based on a single commodity.
While there are fewer agriculture ETFs than banking or tech ETFs, investors looking for exposure will have plenty of options. But be prepared to pay up — agricultural ETFs are often small funds with limited liquidity and high expense rates.
How to Choose Agriculture ETFs
When considering which agriculture ETF to purchase, you must first decide what assets you want exposure to. You'll find two different flavors of agricultural ETFs in your research: those that hold stocks connected to the agriculture industry and those that track commodity prices like wheat or sugar.
What's the difference? ETFs with agricultural stocks will operate like traditional ETFs, but those based on commodities often have a different structure. As you'll see in the list below, several funds are exchange-traded notes (ETNs). An ETN is issued by an investment bank, not an asset manager like BlackRock or Vanguard. Unlike ETFs which hold assets like stocks, bonds or futures contracts, an ETN is an unsecured debt instrument that tracks a market index.
The price of the ETN rises and falls based on the performance of the underlying index. Created by Barclays Bank in 2006, ETNs aim to provide retail investors with tax-efficient exposure to complex securities like commodities or currency futures contracts. Think of them as the bond-like brother to equity-based ETFs — the index tracked may be similar, but the risks and rewards differ. Credit risk is a concern with ETNs since no assets are held, but tracking error is nonexistent, and there are no dividends or distributions to muddle up tax treatment.
8 Best Agriculture ETFs
What is the best agriculture ETF? The answer depends on your risk tolerance and preferred type of exposure. Here are eight different agriculture ETFs and ETNs that provide exposure to different areas of the sector.
1. Invesco DB Agricultural ETF
The first fund on our list, Invesco DB Agricultural ETF NYSE: DBA, is one of the oldest agriculture ETFs, but that doesn't carry much weight in this sector. The Invesco DB Agricultural ETF was established in early 2007 and gives retail investors exposure to commodities through a balanced and highly-liquid ETF. As of Q2 2022, DBA has just under $1 billion in assets under management and charges a net expense rate of 0.91%. The fund holds a variety of futures contracts on commodities like livestock, soybeans, corn, coffee and sugar, along with short-dated U.S. Treasuries. DBA is a convenient asset if you want commodities exposure and want to avoid trading futures.
2. iShares MSCI Agriculture Producers ETF
If commodities aren't your ideal asset class, the next two ETFs might be more up your alley. First is the MSCI Agriculture Producers ETF from BlackRock's iShares. The iShares MSCI Agriculture Producers ETF NYSE: VEGI holds many large-cap agriculture stocks in its portfolio, like Deere and Company NYSE: DE, Archer-Daniels-Midland Co. NYSE: ADM and Corteva Inc. NYSE: CTVA. VEGI isn't a large ETF with just over $260 million in assets, but its 0.39% expense rate is cheap for an ag ETF and pays a small dividend. Over 56% of the fund's holdings are U.S.-based companies.
3. VanEck Agribusiness ETF
The largest ETF agriculture-related is the VanEck Agribusiness ETF NYSE: MOO, with over $1.25 billion in assets under management. Despite being the largest by assets, MOO is less liquid than the similar-sized DBA and only sees about one-fifth of the share volume daily. But MOO has a reasonable 0.55% expense rate and pays a dividend yield of over 2%. The fund has more international holdings than VEGI (48% vs. 44%), including some large European companies like Bayer AG, Nutrien Ltd. and CNH Industrial NV. Some of the fund's largest U.S. holdings include Tyson Foods Inc. NYSE: TSN and The Toro Co. NYSE: TTC.
4. iPath Series B Bloomberg Agriculture Subindex Total Return ETN
The first ETN on our list comes from Barclays' iPath and tracks the Bloomberg Agriculture Subindex. The iPath Series B Bloomberg Agriculture Subindex Total Return ETN NYSE: JJA fund mimics this commodities basket's price, currently weighing the heaviest soybeans, wheat, and corn. As an ETN, no dividends are paid, but the security does have a 0.45% expense rate, which is manageable for broad commodities exposure.
5. Teucrium Agriculture Fund
The Teucrium Agriculture Fund NYSE: TAGS is an investment firm focusing on agriculture-related securities. It offers exposure to a basket of commodities through four of the company's smaller funds. TAGS has only $33 million in assets, but it's a simple fund for investing in the price of wheat, corn, soybeans and sugar and carries a minuscule 0.13% expense rate.
6. Global X AgTech and Food Innovation ETF
One of the newest ag ETFs is the Global X AgTech and Food Innovation ETF NYSE: KROP, launched in 2021 by Global X. The fund is still small, with only $6 million in assets, but the expense rate is only 0.50%, and it offers exposure to smaller agriculture startups like Oatly Group AB NASDAQ: OTLY and Tattooed Chef Inc. NASDAQ: TTCF. Liquidity is a concern as only 2,400 shares are traded daily on average, and the dividend yield is just 0.71%. The fund offers diverse international exposure — only 42% of its holdings are American companies.
7. iPath Series B Bloomberg Coffee Subindex Total Return ETN
One of the offshoots of Barclays' JJA fund, the iPath Series B Bloomberg Coffee Subindex Total Return ETN NYSE: JO fund narrows exposure down to just coffee futures. Tracking only the Bloomberg Coffee Subindex creates more volatility since coffee prices tend to gyrate wildly, especially during periods of economic uncertainty. JO carries the same 0.45% expense rate as its cousins. It's also an ETN, so understand the risk and rewards of those products before investing.
8. Cambria Cannabis ETF
Now for a bit of an alternative agricultural ETF, Cambria Cannabis ETF BATS: TOKE. One of the largest-growing sectors is the cannabis industry as more and more U.S. states move to relax marijuana laws. The cannabis sector has been hit or miss over the last few years. The Cambria Cannabis ETF holds a variety of cannabis, tobacco and agriculture stocks like Scotts Miracle-Gro Inc. NYSE: SMG, Altria Group Inc. NYSE: MO and Jazz Pharmaceuticals PLC NASDAQ: JAZZ. The fund has just over $11 million in assets under management and carries a 0.42% expense rate.
Pros and Cons of Investing in Agriculture ETFs
Investing in agriculture ETFs has benefits and drawbacks. Before putting any capital to work in this sector, consider these points and how they may affect your investment goals.
The benefits of investing in agriculture ETFs include:
- Investing in commodities: Traders can invest in commodities through agricultural ETFs and ETNs. Commodity trading traditionally involves complicated futures contracts and requires a specific type of brokerage account. ETFs and ETNs are sold on major exchanges, and you won't need margin to buy them.
- Under-covered sector: You won't find Jim Cramer fielding too many questions on ag ETFs and stocks on his nightly Mad Money rounds. Some agriculture stocks like Deere and Company NYSE: DE are $100 billion market cap giants. Still, many others are small, under-the-radar companies like Arcadia Biosciences Inc. NASDAQ: RKDA or Intrepid Potash Inc. NYSE: IPI. While risky, small-cap ag stocks often slip through the cracks regarding analyst coverage and ratings.
The downside of investing in agriculture ETFs include:
- Expensive funds: One of the benefits of ETF investing is the ability to buy entire market sectors (or the market as a whole) through a single cheap fund. Unfortunately, many agricultural ETFs hold stocks and commodities contracts, which can lead to some pricey expense rates.
- No dividends: If you're looking for high-dividend ETFs, you probably won't find the agricultural sector appealing. Many funds are ETNs, debt securities that don't pay dividends or distribute capital gains.
Crucial Sector, but no Slam Dunk
Agriculture is one of the most necessary industries on the planet. But markets don't always make sense, and just because an industry is essential for the species' survival doesn't make it an excellent investment. Agricultural ETFs are often a mix of equities and commodities, meaning investors must understand two asset classes to navigate this sector successfully. Not only are these funds unlike most other sector ETFs, but they must also be expensive and illiquid, especially as the funds' themes get narrower.
Always perform due diligence on these securities and understand how futures contracts work before investing in ag ETFs. To simplify your research, use the MarketBeat ETF Screener to search for funds by market cap, expense rate or holdings.
Still wondering, “What are the best agriculture ETFs?” Here are a few commonly asked questions about agriculture stocks and how they fit into the broader market:
What is the largest agricultural ETF?
The largest agricultural ETF is the VanEck Agribusiness ETF, with over $1.25 billion in assets under management. For commodities contracts, the Invesco DB Agricultural ETF is the largest.
What are the best ETFs to invest in farmland?
While there's no specific farmland ETF per se, several ETFs invest in farmland stocks, such as the DB Agriculture ETF and the VanEck Agribusiness ETF.
What is the best agricultural stock to invest in?
Regarding agricultural stocks, "best" is a very subjective term. Some investors will prefer food producers and farms. Others may prefer companies that make farm equipment and pesticides. Or you could eschew equities and focus on farming commodities like wheat, soybeans, livestock or grains.
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