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Investing in the future of agriculture

Key takeaways

  • War-related disruptions have led to elevated grain prices. While that's been bad for some food producers it's generally been good for grain farmers.
  • With more cash on hand, many farmers may be looking to upgrade equipment, which could benefit agricultural machinery producers.
  • Companies making "precision agriculture" equipment could see short- and long-term benefits as farmers look to plant and maintain their crops with more efficiency.
  • Seed producers could also see a potential benefit over both the near and longer term, as food producers increasingly seek to plant higher-yielding crops.

Chances are that, as little as a few years ago, most of us didn't give much thought to where our food staples came from. Grocery store shelves were reliably stocked with an abundance of choice and supply, with basic items selling for reasonable prices.

What a difference a war and pandemic make. These days, many of us are more viscerally aware that chickens don't grow in grocery-store freezers, that a good portion of the wheat we consume normally comes from Ukraine, and that links in global supply chains can occasionally break.

As managers of the Fidelity® Agricultural Productivity Fund (), David Wagner and Steven Calhoun are focused on both the near-term constraints and long-term challenges that global food supplies must surmount. At the core of the fund's investment thesis is some stark math: The world's population is projected to grow to almost 10 billion by 2050, from about 7.7 billion currently.*

To meet a rising need for calories with what is, more or less, a fixed amount of arable land, food growers must improve productivity. An emerging set of new technologies is seeking to do just that—with the possibility of potential returns for investors along the way.

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Near-term pain, with potential for gain

Calhoun and Wagner say that to understand the current moment in agriculture one has to start at the bottom of the food chain, with grains.

Together, Russia and Ukraine normally supply around 30% of the world's wheat and 20% of its corn, Wagner says. Due to the confluence of war-related disruptions—from sanctions on Russia to the destruction wrought by tanks driving across wheat fields—much of that supply has not been making it into the global market, triggering elevated grain prices. Calhoun says that these dynamics could worsen over the next year because Ukrainian farmers likely planted significantly less crop this year than usual (and those impacts won't be felt until after the 2022 growing season finishes).

High grain prices hurt food producers further along the food chain, such as chicken farmers who must pay more to feed their flocks, or vegetable oil producers who must pay more for inputs. But they're a positive for grain farmers in the West and other areas untouched by war, Calhoun says.

"Many farmers are making incredible profits right now," he says.

That dynamic means many farmers may use some of that extra cash to invest in the newest equipment, such as by buying the latest combines and tractors, providing a potential benefit to agriculture equipment companies.

For example, some new tractors made by Deere & Co. (), also known as John Deere, are equipped with cameras and processors that let the tractor identify weeds and spray herbicide only on the weeds—preserving the healthy crops and dramatically reducing farmers' total use of herbicides.

More precision, stronger seeds

Those new tractors are an example of so-called "precision agriculture"—a move toward closer monitoring of crops and soil in order to improve the land's productivity. "It effectively means you're using technology and data in the field to make farming more productive," says Wagner. "That means more supply and higher productivity for the farmer in terms of their time, energy, and cost."

Some of the latest equipment and tech can tell farmers which parts of their fields need more or less moisture, or fertilizer (plus exactly which type of fertilizer to use).

"Precision agriculture can use GPS and weather forecasts to tell a farmer, 'You need to plant this year's crop in the next 4 days,'" says Calhoun. Those equipment companies may have both strong near-term prospects, as farmers spend their current cash, plus long-term prospects as precision agriculture gains greater adoption. Agriculture machinery manufacturer AGCO Corp. () is another portfolio holding that could illustrate this investment thesis, Calhoun says.

Another key driver that could help boost productivity over both the short and long term is advances in seed strains. Seed companies, like portfolio holding Corteva (), are working on developing corn seeds that produce more corn per stalk or per acre, and on drought-resistant seeds that could generate the same or more calories as other seeds, but with less water. Some seeds may be engineered to thrive in a particular region, or in less fertile soil.

"If you look back at where we planted corn 20 years ago versus where we plant today, the corn area is moving north," Calhoun says. "You have fewer growing days the further you go north because there's less sunlight, so you have to engineer a specific seed that will thrive in that environment."

Fund top holdings

Top 10 holdings of the Fidelity® Agricultural Productivity Fund () as of June 30, 2022:

  • 19.1% – Deere & Co. ()
  • 11.3% – Nutrien Ltd. ()
  • 10.3% – Corteva, Inc. ()
  • 9.1% – Archer Daniels Midland Co. ()
  • 4.8% – CF Industries Holdings, Inc. ()
  • 4.7% – FMC Corp. ()
  • 4.6% – Lamb Weston Holdings, Inc. ()
  • 4.1% – The Mosaic Co. ()
  • 3.5% – CNH Industrial NV ()
  • 3.1% – Bunge Ltd. ()

(See the most recent fund information.)

Strawberries stacked to the sky

Wagner and Calhoun also keep their eyes on the potential technologies of tomorrow, even if, in some cases, it's too soon to take an investment position in the tech.

For example, although precision agriculture and better seeds may be big drivers for so-called "row crops"—like corn, wheat, and soybeans—for fruits and vegetables the future may lie in what's known as "vertical farming," in which plants are grown in tall greenhouse-like environments.

"Imagine a 100,000-square-foot, temperature-controlled, perfect condition with no pests," Calhoun says. "You're going to have 30 layers of decks of strawberries or blueberries."

Because these vertical farms are temperature controlled it's possible to grow year-round, with a new crop of fruit maturing every few weeks. And because there are no pests or weeds, there's also no need for pesticides or herbicides.

"You're not spraying any of this other stuff on it," says Calhoun. "You're literally just getting a strawberry—a Mother Nature strawberry."

Learn more

To learn more, check out the Fidelity® Agricultural Productivity Fund and its most recent publicly available holdings, or consider evaluating potential investments with our Stock Screener or ETF screener.

You can also learn more about thematic investing, get more sustainable investing ideas, and read more recent market insights and commentary from Fidelity's portfolio managers.

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* "World Population Prospects 2022: Summary of Results," United Nations Department of Economic and Social Affairs, July 11, 2022, Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. The agriculture productivity theme can be significantly affected by consumer and product trends, competitive pricing, technological changes, and environmental factors, including weather and natural disasters, as well as the performance of the overall economy, interest rates, consumer confidence, and the cost of commodities. Regulations and policies of various domestic and foreign governments may affect agricultural products. The fund may have additional volatility because of its narrow concentration in a specific industry. Non-diversified funds that focus on a relatively small number of stocks tend to be more volatile than diversified funds and the market as a whole. Any holdings, asset allocation, diversification breakdowns or other composition data shown are as of the date indicated and are subject to change at any time. They may not be representative of the fund's current or future investments. The Top Ten Holdings and Top 5 Issuers do not include money market instruments or futures contracts, if any. Depository receipts are normally combined with the underlying security. Some breakdowns may be intentionally limited to a particular asset class or other subset of the fund's entire portfolio, particularly in multi-asset class funds where the attributes of the equity and fixed income portions are different.

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