The global commodity markets have weathered a succession of blows these last few years. The toxic combination of the COVID-19 pandemic with its mass lockdowns, the Ukraine war, and climate change has affected the availability and prices of both hard and soft commodities. In today’s complex global economy, few commodities exist in isolation from each other, and their availability has knock-on effects across society as a whole.
Most investors are readily familiar with hard commodities like oil, natural gas, and gold. Now, concerns about the supply of soft commodities from the agricultural sector have recently been dominating headlines in the financial press and rousing the interest of traders and investors. Food staples like corn, wheat – and now rice – whose availability we previously took for granted, have become high-profile assets experiencing uncharacteristic price volatility.
The Rice Crisis Overview
Rice is arguably the least well-known soft commodity in the US and Europe. This isn’t surprising given that the traditional cereal food staples in the bread-eating West are wheat, corn, and barley. Many Americans would be surprised to discover that the US is in fact a rice producer with over 3 million acres under production in several Southern states, as well as California. Rice is also used in the commercial manufacture of a number of major American light beer brands.
US and EU rice cultivation is minuscule compared to the major Asian producers who produce 90% of the world’s supplies. Abundant rice harvests are essential for over half the world’s population (an estimated 3.5 billion people) for whom rice is a staple food and a primary source of daily calories. Locally harvested rice is vital for the survival of many rural communities across the Asia-Pacific region, with imported rice playing a major role in food security for dozens of nations in Africa, the Middle East, and South America.
According to a recent CNBC report, we’re now facing the biggest rice shortage in 20 years with a global shortfall of 8.7 million metric tons. This comes at a time when the Ukraine war and Russian export policy are jeopardizing exports of staple cereals while high fertilizer prices are having a negative impact on cereal prices.
These twin staples of human food consumption: bread and rice – are facing imminent price rises. Rice may be largely overlooked by Western investors, but it accounts for billions of dollars in trading volume on the global commodity markets.
Recent Weather Phenomena Affecting Rice Production
A common image of rice farming is of wet rice paddies in tropical climates. Rice certainly needs plenty of water and a warm climate to flourish. Recent weather events have negatively impacted rice production and extreme weather events are becoming more common. Rice farmers urgently need localized, tech-driven solutions to the challenges of climate change.
- Heavy monsoon rains and floods in China
- Severe flooding in Pakistan
- Frequent droughts in the Lower Mekong Basin
Who Are The World’s Rice Producers?
The United Nations Food and Agriculture Organisation reports that global production of milled rice in 2022/23 stood at 512.4 million tons, down 2.3 million tons from the previous year. The predicted top 5 rice producers for the coming year are:
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- China – 149,000,000 metric tons
- India – 128,500,000 metric tons
- Bangladesh – 35,650,000 metric tons
- Indonesia – 34,600,000 metric tons
- Vietnam – 27,400,000 metric tons
To gain perspective, the US is expected to produce 5,589,000 metric tons of milled rice this year.
Given that the world’s rice producers are expected to produce a total of over half a billion tons of milled rice this year, a predicted shortfall of just under 9 million metric tons may not seem like a major issue. On the contrary, it has the potential to drive a bull market for rice; with major price increases and competition for supplies.
If consumers spend a higher proportion of their incomes on basic food products, reprioritized consumer household budgets will spend less on non-essential items. These economic ripples will be felt around the world.
Investing In Agriculture In 2023
Traditionally investing in Agricultural stocks was seen as a low-risk/low-return sector that lacked glamor and potential when compared to other sectors or trading commodities.
However, now they are full of potential for investors. The performance of wheat, and now rice, shows that agricultural staples can be as volatile as oil and gold – and just as vital to the global economy. What’s even more captivating about this sector are those companies that specialize in agricultural technology (Agtech) and food technology (Foodtech).
The challenges of climate change, population growth, and geopolitical events like the Ukraine war are driving demand for more efficient and sustainable agriculture. New technologies; 5G internet and the Internet of Things; AI and cloud data; electric vehicles and drones; smart irrigation; advances in fertilizers and energy production are transforming agriculture.
This decade will see a quantum leap in the application of technological solutions to agricultural challenges. The companies that deliver innovative technologies in agricultural products will see an exponential rise in their revenues and net worth. The potential rewards for investors justify a deeper exploration and analysis of agricultural stocks .
ICL – an Agriculture Stock to Watch
ICL Group (NYSE:ICL) (TLV:ICL)
As a leading specialty minerals producer, and known to be one of the world’s biggest fertilizer manufacturers, ICL services the food, agricultural and industrial sectors.
The company has held onto its reputation for its commitment to implementing Sustainable Development Goals throughout its business process, an initiative popularized by the United Nations.
The importance of companies and startups in the Agricultural Technology (AgTech) industry has gathered increasing support from private and public shareholders, with several government bodies now throwing their weight behind the improvement of domestic agricultural production, food security, and more sustainable farming methods.
Research by the London-based Juniper Research firm estimates that the value of the AgTech market is estimated to reach more than $22.5 billion by the middle half of the decade. This would be a significant rise from its reported $9 billion market share value in 2020, translating into 150% growth throughout the next several years.
On the back of this expected growth sits ICL, firmly planting itself to provide industry leaders, producers, and manufacturers with appropriate solutions that aim to help improve outdated farming and agricultural practices.
Similar to many other companies of its size and status, the recent rise in interest in Environmental, Social, and Governance (ESG) investing has led many corporate household names to adjust their approach to attract conscious investors, as they seek new opportunities to build more sustainable portfolios.
Along with their commitments to the reduction of greenhouse emissions, and water conservation, and helping younger startups develop more environmentally conscious business models that seek to leverage modern technology, while at the same time promoting sustainable agriculture practices.
With 24 R&D centers and a workforce of over 13,000 employees worldwide the company focuses heavily on innovation. Agmatix, an AgTech startup owned by ICL, aims to revolutionize the role of technology in agriculture with a platform that converts agronomic big data into useful models and insights.
Further, ICL has established the Planet Startup Hub, an accelerator focused on FoodTech and Agtech, as well as recently launching eqo.x, a controlled-release fertilizer that uses a novel biodegradable release technology. Another example is their development of FuitMag, a superior sustainable solution for post-harvest citrus fruit preservation.
These are some examples of how ICL is aiming to meet both AgTech and FoodTech demand and is promoting sustainable agriculture practices. ICL has a large focus on reducing greenhouse gas emissions, conserving water resources, and minimizing the environmental impact of its operations.
Earnings And Beating Estimates
ICL’s quarterly earnings were just announced on May 10, 2023 of $0.23 per share, beating many analysts’ estimates of $0.19 per share. This quarterly report represents an earnings surprise of 21.05%. Last quarter they were expected to post earnings of $0.27 per share when it actually produced earnings of $0.28, delivering a surprise of 3.70%.
Over the last four quarters, ICL has surpassed consensus EPS estimates four times. They posted revenues of $2.1 billion for the quarter ended March 2023, surpassing the estimates by 5.98%. This compares to year-ago revenues of $2.53 billion. ICL has topped consensus revenue estimates four times over the last four quarters.
ICL delivered some excellent YoY results in 2022 and 2023. Its current price at 6.34 (May 16, 2023 close) which is trading slightly above its 52-week low, and its 52-week high was 11.94 , this makes it a very attractive entry point for whoever is considering adding this stock to their portfolio. Many consider the current price to be extremely undervalued. ICL is a company to watch.
The largest rice shortage in 20 years perfectly illustrates the need for technical innovation in every aspect of agriculture. The agricultural sector is the most durable and dependable market in the world. People may stop buying luxury goods, and reduce their consumption of non-essentials to a bare minimum, but they will always need food.
This is why many inventors add agriculture stocks to their portfolios as a way to shield from market downturns or as they say “crisis-proof” their portfolio. Companies such as ICL Group, producing innovative products for the agriculture industry, are helping to increase crop yields, improve plant quality, and enhance soil fertility.
These solutions are helping make food security a reality for millions of people around the world, and are definitely worth considering in times of a food crisis and rice shortage.