Speculation has mounted that soft commodity traders have been sitting on grain stockpiles in anticipation of higher prices. That probably makes good commercial sense, even if it’s questionable from a moral perspective. Any delay to market disproportionally impacts those who can least afford to meet price increases.
Leaving ethics aside, the current febrile nature of global agricultural markets is an obvious consequence of the war in Ukraine, but it doesn’t end there. It is becoming increasingly clear that agricultural produce is deriving price support from governmental environmental policy, a situation analogous to global energy markets. It’s this latter factor which provides pointers for investors looking to profit from the growth in agronomics and the tech that promises to transform farming methods.
The first shipment carrying Ukrainian grain set off from the port of Odesa at the beginning of August. Both Russia and Ukraine have signed separate agreements with Turkey and the United Nations that have cleared the way for the export of grain which has been languishing in Black Sea ports because of Russia's invasion. The agreements also extend to Russian exports of grain and fertilisers.
Whether the agreements are observed by Moscow is anyone’s guess, but Ukraine’s president, Volodymyr Zelenskyy, has also warned that the country’s harvest could be halved due to Russia’s aggression. The invasion has also had a negative impact on warehouse and silo capacity. Ukraine accounts for 12 per cent of global wheat exports and is a significant producer of corn, sunflower seeds and barley, all key staples.
The situation in Ukraine obviously has dire implications for global food security. Unfortunately, there is evidence that price increases are already giving way to food shortages – and matters could get worse. Farmers have been struggling with a surge in input costs, especially fertilisers and diesel used for transportation and farm equipment. This is imperilling yields from the winter wheat season, normally sown between September and November in the northern hemisphere and harvested in early autumn in the following year.
If all this wasn’t worrying enough, the Canadian government has signalled that it is following the example provided by its counterpart in the Netherlands, targeting the agricultural sector by limiting fertiliser use in a bid to reduce nitrogen emissions. Both nations are massive agricultural exporters, but their respective prime ministers, messrs Trudeau and Rutte, appear to be basing their national agricultural policies on the environmental wish list of the World Economic Forum. Presumably, neither leader is aware of the events unfolding in Sri Lanka, where the rural economy is in turmoil due to an ill-conceived and sudden ban on chemical fertilisers.
As with much else, change in agriculture tends to be incremental, but recent developments have tended to run in line with wider digital transformation. So if governments are committed to reducing nitrates used in farming, there are already technological solutions at hand. Agricultural companies like Norway’s Yara International (NO:YAR) and Deere & Co (US:DE) have been constantly updating systems and equipment that enable farmers to accurately apply the optimal level of fertilisers across fields, thereby minimising leaching and run-off to watercourses.
Other companies such as Nutrien (US:NTR) and Corteva Agriscience (US:CTVA) are also pushing ahead with novel and advanced technologies, integrated into one system combining satellite imagery with weather and soil data. This enables farmers to improve food production while reducing or regulating farm inputs and environmental degradation. And there has been no shortage of venture capital interest in hydroponics – growing plants without soil – with the likes of SoftBank's Vision Fund and DCM Ventures helping to drive the developing technology behind vertical farming.
There have even been some interesting developments in agronomics closer to home, albeit on a more modest basis. Agronomics Limited (ANIC) and SEED Innovations (SEED), of which Jim Mellon, executive director of Agronomics, has a 7 per cent holding, have been engaged in a funding round for Clean Food Group, a UK-based cellular agriculture company focused on the commercialisation of palm oil by fermentation. The oil is the most widely consumed vegetable oil on the planet, but related farming practices have been linked to deforestation and the loss of natural habitats. Up till now, Agronomics has mainly been associated with technologies that produce large-scale quantities of meat by isolating an animal’s stem cells and adapting them to grow in vitro. For many people that would probably be at the Mary Shelley end of the scientific spectrum, but it does underline why tech offers the best way to square industrial agriculture with environmental concerns. Therein lies the opportunity for investors.