Even before the onset of the coronavirus pandemic in 2020, the agribusiness was grappling with a range of headwinds, from hurricanes and poor planning that disrupted crop growth cycles to the impact of retaliatory tariffs that slashed exports. When Covid hit, it highlighted existing problems and brought new ones, including supply and demand shocks in the food system and a labor shortage. Then the invasion of Ukraine dealt another blow, sending global grain markets into turmoil. These problems have highlighted an immense need for investment in agriculture and particularly in technology to improve the efficiency of industry. “This area has great appeal, and since the pandemic began, there have been a number of events focused on food security,” said Kristen Owen, Oppenheimer’s executive director and senior analyst for sustainable growth and resource optimization. For retail investors looking to expand their portfolio, add some recession-proof assets, and capitalize on an emerging trend, there are opportunities to play in the agtech space, analysts say. Perhaps it’s best to focus on large, established companies that have invested in innovation themselves and have acquired smaller companies that are driving the industry forward. ‘A huge opportunity’ “It’s a huge opportunity, but access to capital has become much more difficult, especially this year,” said Owen. Deals and venture capital investments in this space have increased since 2020. That year, venture capital put $3.4 billion into 422 deals, double the $1.7 billion invested a year earlier, according to Crunchbase data. In 2021, even more money flowed into funding agricultural technology startups with 440 deals and $4.9 billion. Investments have slowed down slightly this year. As of Oct. 17, there have been 321 deals and nearly $3.5 billion invested in Agtech, according to Crunchbase. That’s because the stock market has been sluggish all year but has remained in a bear market — 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 has dried up this year — the third quarter was one of the slowest in decades — and kickstarts 2022 for its weakest earnings in more than 30 years, the firm said. Rising interest rates also weigh on companies that need to borrow money to grow. Leveraging mergers and acquisitions to evolve There are a few major players in the industry with a proven track record of investing in innovative technologies and acquiring smaller companies. “Large traditional farming has invested in smaller startups and that is helping to drive portfolio development,” said Steve Hansen, managing director and equity analyst at Raymond James. “There are a number of ways to play with smaller, more agile companies that are growing faster, but this is a tougher environment for them right now.” Ag is one of the few that we’re confident will maintain profitability into 2023 Executive Director and Senior Analyst, Oppenheimer Kristen Owen One example is Deere & Co, an agricultural manufacturing company and one of Owen and Hansen’s top picks Kriesel’s advanced battery technology will help Deere develop and lead off-highway vehicles – like tractors and other farm equipment – into a zero-emission future. The deal was valued at $249.2 million. “You’re seeing a little bit more of these bigger companies getting into the venture 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’s autonomous developed agricultural equipment, for $250 million. “As our customers face the challenge of feeding a growing world with limited resources, it is imperative that we continue to deliver solutions that enable them to do more with less,” said a spokesman for Deere. “Automation and autonomy, as well as innovations in sustainable land management, are crucial steps forward and create opportunities for them to develop more sustainable and profitable operations. Investing in partners who can help us drive those 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. Also AGCO, an agricultural machinery manufacturer, has made several investments or acquisitions in new technologies in space in recent years.In May, the company acquired JCA Industries, a company that develops autonomous software for agricultural machinery, following its December 2021 agreement to acquire Appareo Systems, another software engineering, hardware engineering, and electronics manufacturing company. AGGO also bought Precision Animal Farming company Farm Robotics and Automation in 2021. Shares of AGCO are down less than 1% year-to-date. One of Owen’s top picks this year range is Trimble, a medium-sized software company that offers a precision Farming that uses technologies like GPS-enabled tractors and satellite imagery to help farmers use their fields effectively. The company was also part of the trend to finance new technologies – it invested $61 million in Monarch Tractor, a developer of autonomous tractors, along with CNH Industrial. Trimble shares are down about 36% since January. Corteva is a top pick for Hansen, and its shares are up more than 33% since January. The farming company in September bought Symborg, a Spanish microbiological technology company that makes biostimulants and biofertilizers for many types of crops and farming systems that boost yields. “They really are at the forefront of innovation, either internally or through acquisitions,” he said. Stimulating Investment Of course, high inflation has weighed on the US economy and prompted aggressive rate hikes by the US Federal Reserve, raising fears of a recession next year. While this presents headwinds for many industries, agriculture is somewhat distant from these pressures as food and organic materials are important for use in other industries such as corn and soybeans in ethanol. “The main drivers for the room almost run in their own biorhythms,” said Hansen. Some inputs like fuel costs and commodity prices are economically sensitive, but the actual supply and demand fundamentals that drive crop prices are independent of the actual economic cycle, he added. Additionally, grain inventories are at or near a decade low, a problem that signals more growth is needed. Because of this, his company is very positive about the health and potential of the agricultural sector over the next year. Certain areas of the industry are also experiencing tailwinds, according to Owen, which should benefit them in the years to come. “It is certainly the case that we underinvested in our agribusiness for about a decade and now that we are witnessing a confluence of events that are propping up that economy and really incentivizing investment in this area, investors should really take advantage of it. ” She said. “Ag is one of the few we believe can maintain profitability into 2023.” This includes sustainability initiatives in fertilizer and energy transitions to renewable diesel that require corn and soybeans. “They have this tailwind that continues to support this industry that is different from the macro view,” she said. Eyes open to the future With the market for new technologies in agriculture and the growing number of companies, it is possible that a number of companies will go public in the coming years, giving retail investors the opportunity to invest directly. One reason public offerings have dried up in space is the decline in the market for special purchases, a type of IPO that has become popular in recent years. Such companies, called SPACs, raise money through an IPO and then select a target to go public through merger. They have been very popular in 2020 and 2021 as it is often easier to go public than the traditional IPO process. That market dried up as stocks plummeted and regulators scrutinized many of the deals made in 2020 and 2021. Now issuance has ground to a halt — no SPACs were issued in July, and liquidations of SPACs have topped $12 billion so far this year. Because of this market, many companies stay private longer and delay potential IPOs by a few years. “There are more and more companies that are part of this later tranche that could go public in 2024 and 2025,” Owen said.