1 Agriculture ETF Beating the Market in 2024

No matter how far the artificial intelligence (AI) revolution has carried us, food is still the most basic of needs - and the agriculture industry is there to meet this consistent demand. A detailed report from the Business Research Company forecasts the global agriculture market to grow by 7.7% annually through 2028 to surpass $19 trillion. 

Investing in agriculture stocks and exchange traded funds (ETFs) can help to diversify your portfolio, while lowering investment risk. Here's one way to do it.

Why Invest in Agriculture?

Agriculture prices are certainly not immune to volatility. The industry is impacted not just by shifting consumer demand, but by harder-to-predict forces like extreme weather, illness, and geopolitical conflicts. 

For instance, the war between Ukraine and Russia squeezed the supply of commodities such as fertilizers and wheat two years back - but more recently, the soaring prices of cocoa and coffee have hit the headlines. At the same time, prices for corn and soybeans have dropped considerably. 

In fact, food prices are so notoriously volatile that the government excludes them from its “core” inflation readings. However, food prices are a substantial component of non-core inflation readings - not to mention most household budgets - which means investing in agriculture is one way to hedge against stubbornly hot inflation.

About DBA

One quality ETF that provides exposure to the agriculture sector is the Invesco DB Agriculture Fund (DBA). The DBA ETF is among the most popular options for investors to gain exposure to agricultural commodities. The fund invests in a basket of liquid and widely traded agricultural commodities futures contracts, and is ideal for those looking to implement a near-term tactical tilt to benefit from elevated inflation levels. 

With $787 million in assets under management, the top commodity holdings of the fund include cocoa, live cattle, soybeans, sugar, corn, and coffee, which account for roughly 70% of the fund. 

DBA's expense ratio of 0.93% might seem high compared to traditional ETFs, but it is lower than the expense ratio of peer ETFs, at 1.70%. Moreover, the fund pays shareholders an annualized dividend of $0.96 per unit, translating to a forward yield of almost 4%. 

Why Is DBA Outperforming?

Shares of DBA have gained more than 19% so far in 2024, while the broader S&P 500 Index ($SPX) has gained just over 9% since the start of the year.

And DBA isn't just outperforming the broader equities market this year. It's also beating the returns of the S&P 500 Tech Sector SPDR (XLK), up just 7.7%, and the S&P 500 Energy Sector SPDR (XLE), which has notched a standout gain of its own at 15.8%.

On Tuesday, cocoa prices hit another new record high on the back of supply constraints. Cocoa futures for May (CCK24) once again peaked above $10,00 per metric ton before closing lower. In fact, cocoa prices have more than tripled in the last year. 

The Ivory Coast and Ghana account for two-thirds of global cocoa bean production, and the two West African countries have been struggling with dry heat, heavy rain, and disease, which has resulted in supply shortages. Due in part to an increase in cocoa prices, the DBA ETF has gained over 26% in the last year. 

Additionally, coffee prices are also on the rise now, with both arabica (KCK24) and robusta (RMK24) futures pushing higher amid unfavorable conditions in Brazil and Vietnam, respectively. 

While the price trajectory for agri-commodities is notoriously difficult to forecast, given the multiple variables involved, investors seeking a hedge against further commodity price increases and food inflation should consider DBA as a compelling option.