The Zacks Agriculture – Products industry has been grappling with high input costs, labor shortage, and supply-chain headwinds, compounded with the challenge of declining commodity prices. Nonetheless, the industry is buoyed by increasing consumer awareness of food ingredients and the growing preference for healthier alternatives. Additionally, alternative agricultural technologies like hydroponics and vertical farming are set to be pivotal drivers, offering inherent benefits to the sector.
Companies such as West Fraser Timber Co., CalMaine Foods, GrowGeneration, Hydrofarm, and Arcadia Biosciences stand poised to capitalize on the robust demand in their end markets and continued growth initiatives.
About the Industry
The Zacks Agriculture – Products industry encompasses companies engaged in storing agricultural commodities, distributing ingredients, and farming crops, livestock, and poultry. Some are involved in purchasing, storing, and selling agricultural commodities, while others offer innovative plant-based health and wellness products. The industry also includes companies producing lumber.
Future Trends in the Agriculture – Products Industry
Low Commodity Prices, High Costs Act as Woes: An array of factors such as high interest rates, a strong dollar, and favorable weather conditions have led to a decline in agricultural commodity prices. Coupled with rising production costs, this trend is expected to impact U.S. net farm income. Companies are responding by implementing cost-reduction measures and pricing strategies to uphold margins.
Solid Demand to Support Industry: With population growth and demographic changes, the global food demand is projected to rise, paving the way for companies to invest in innovation and offer healthier food alternatives. Improvements in grain-handling techniques and investment in larger storage spaces are set to bolster the industry.
Hydroponics & Cannabis Act as Key Catalysts: The popularity of hydroponics, which enables faster crop production and higher yields, along with the rising utilization of vertical farming, presents extensive growth opportunities. Despite challenges, the long-term prospects for the cannabis industry remain promising, especially as several states in the United States have legalized its use.
Industry’s Rank and Performance
Zacks Industry Rank Indicates Dull Prospects: The Zacks Agriculture – Products industry currently carries a Zacks Industry Rank #220, placing it in the bottom 12% of the 251 Zacks industries. This position reflects a downward earnings per share estimate for the constituent companies.
Industry Versus Broader Market: Over the past 12 months, stocks in the Agriculture – Products industry have underperformed the S&P 500 composite and the Basic Materials sector, declining by 8.8% as compared to the S&P 500’s growth of 20.3% and the Basic Materials sector’s decline of 7.2%.
One-Year Price Performance
Industry’s Current Valuation
Based on the trailing 12-month EV/EBITDA ratio, the Agriculture – Products industry is currently trading at 5.65X compared with the S&P 500’s 16.96X, while the Basic Materials sector’s trailing 12-month EV/EBITDA is 15.22X.
