Do you ever wonder about the source of the food on your plate or the milk in your fridge? You have agricultural companies to thank for that.
These companies produce and sell the basic foodstuffs that Canadian and global consumers depend on, which include things like wheat, livestock (cows, chickens, pigs), eggs, sugar, soybeans, and corn to name a few. Adjacent to them are support companies that provide a plethora of agricultural equipment and services which support the overall industry.
Agriculture is one of the most longstanding and evergreen cornerstones of our global economy and will likely see strong tailwinds from soaring demand as the global population grows. For example, the Organisation for Economic Co-operation and Development (OECD) projects that global demand for agricultural products will grow by 15% over the next decade 1.
Similarly, a 2022 article by the World Bank noted that agriculture accounts for 4% of global gross domestic product (GDP) on average, and more than 25% of GDP in some developing countries2. All in all, these figures underscore the importance of agriculture in the global economy.
Like any other industry, Canadians can invest in agriculture, but that doesn’t mean buying farmland or stockpiling cartons of eggs or bushels of wheat in a shed. Rather, Canadians can invest in a variety of exchange-traded funds, or ETFs, that track agriculture stocks or agriculture commodities. Here’s all you need to know before investing in an agriculture ETF.
What is an agriculture ETF?
ETFs are versatile investment instruments that allow investors to track a variety of assets, including stocks, bonds, and commodities. In the case of agricultural ETFs, they can hold either stocks or commodities, which allows them to provide exposure to agricultural industry trends.
When investors buy shares of an agriculture ETF, they’re receiving proportional exposure to a slice of its underlying “basket” of assets, which in the case of agriculture ETFs can take one of two forms:
- Stocks: Some agriculture ETFs hold the stocks of agriculture industry companies, which can be Canadian, North American, or internationally based.
- Futures: Other agriculture ETFs hold derivatives called futures, which are agreements to buy or sell agriculture products like soybeans, wheat, pork bellies, and corn at a pre-determined price in the future.
The first type of agriculture ETF is more akin to a sector or industry-specific equity ETF, while the latter is a pure-play commodities ETF. Both have their own pros and cons, so it’s important to do research and assess which is the best for your portfolio.
Regardless of their underlying asset, all agriculture ETFs will charge fees. This is expressed as the ETF’s management expense ratio, or MER, which is comprised of management fees and fund expenses like admin, operations, and marketing costs.
The MER is calculated as a percentage deducted annually from the total amount you have invested in the ETF. For example, an agriculture ETF with a 0.20% MER would cost you around $20 annually if you made a $10,000 investment. As always, keeping fees low is a good idea.
Top Canadian Agriculture ETFs
The following ETFs provide exposure to agriculture stocks or commodities. Because the Canadian ETF market is smaller, some of the picks here are U.S.-listed ETFs. To buy these ETFs, Canadian investors will need to convert U.S. dollars. For a step-by-step guide on how to buy U.S. stocks and ETFs, consider giving this article a read.
| ETF Name | Inception date | Expense ratio | Highlights |
| iShares Global Agriculture Index ETF (TSX:COW) | December 19, 2007 | 0.71% | Tracks global agriculture stocks via the Manulife Investment Management Global Agriculture Index |
| BMO Global Agriculture ETF (TSX: ZEAT) | January 23, 2023 | 0.40% | Provide exposures to a portfolio of global large-cap agriculture and agriculture-related companies. |
| Teucrium Agricultural Strategy No K-1 ETF (NYSEMKT:TILL) | May 16, 2022 | 0.89% | Provides actively managed equal-weight exposure to corn, wheat, soybeans, and sugar futures contracts |
iShares Global Agriculture Index ETF
The aptly named COW provides investors with passive exposure to global agriculture companies by tracking the Manulife Investment Management Global Agriculture Index. Currently, this ETF has 36 holdings and is the longest-tenured ETF on this list and the largest in terms of assets under management in Canada. COW charges a 0.71% MER.
BMO Global Agriculture ETF
An alternative to COW is ZEAT, which selects a portfolio of 31 large-cap global agriculture companies. The ETF defines these as companies that are involved in or benefit from agricultural production, chemicals, farm machinery, food distribution, and packaging. ZEAT is a relatively new ETF, with much lower assets under management than COW. However, it charges a lower MER of 0.40%.
Teucrium Agricultural Strategy No K-1 ETF (TILL)
Investors looking for exposure to agriculture commodity futures will need to convert to U.S. dollars to buy ETFs like TILL. This ETF is actively managed, maintaining long exposure to four different agriculture commodity futures contracts in approximately equal weights: corn, wheat, soybeans, and sugar. The ETF charges a 0.89% MER. Unlike the previous options, TILL does not hold agriculture stocks.
Pros of investing in agriculture ETFs
Some of the reasons why agriculture ETFs might be a good investment include:
- Inflation hedge: Agriculture companies and agriculture commodities tend to be more resistant to high inflation than regular stocks and bonds.
- Diversification: Agriculture commodities possess a lower correlation to both stocks and bonds, which can improve a portfolio’s diversification.
- Accessibility: Agriculture ETFs are easier to research and buy than individual agriculture stocks or agriculture futures contracts.
Cons of investing in agriculture ETFs
- High volatility: Agriculture ETFs holding commodity futures contracts can be more volatile than stocks and bonds due to supply and demand shocks.
- Expensive: Specialty and niche ETFs like agriculture ETFs tend to be pricier than their broad-market equity index counterparts.
- Concentration risk: Agriculture ETFs are subject to greater sector and industry-specific risks owing to the lower degree of diversification.
Are agriculture ETFs right for you?
Agriculture ETFs are a unique investment for those who want to explore the world of farming and food and bet on its long-term success. While they may be a bit more complicated than your average investment, they’re great for investors who aren’t afraid of a little risk and sector-specific concentration. They can be a good way to spice up a strong, diversified core portfolio.
These funds can have higher fees and might be more volatile than other investments, but they offer an easy way to possibly hedge your portfolio against inflation. Plus, they can add nice variety to your investment allocation, since they don’t always move in the same way as stocks, bonds, and cash do, especially when it comes to the futures-based variants.
So, if you’re looking to spice up your portfolio and support the global food industry, agriculture ETFs could be just the ticket! Alternatively, if you fancy picking individual Canadian agriculture stocks, we have just the guide for that, too.