Summer 2020 Agribusiness Market Monitor: Effects of Disruption and Trends

As countries continue to reopen around the world after shutting down because of COVID-19, the agriculture industry in particular is experiencing visible and vital economic consequences.

Here are some of the evident effects of the pandemic for the industry:

  • Citizens around the world shifted from eating out somewhat frequently to eating in, nearly exclusively. As a means of survival, US restaurants had to quickly navigate new takeout models and food delivery services.
  • Outbreaks began popping up at processing facilities and among farm workers.
  • Travel and trade restrictions were implemented, which highlighted global food shortages.
  • Lower demand for some products outpaced supply constraints, leading to steep commodity price declines.
  • Higher demand for other products led to consumer stockpiling staples, leaving grocery shelves empty.

The remainder of 2020 should reveal short-range economic impacts and offer hints of what the industry can expect longer term. Following is a closer look at the current environment, planning considerations, which includes mergers and acquisitions (M&A) and recent activity, and lessons learned.

Current Environment

Agribusinesses Pivot

COVID-19 closures, shutdowns, and slowdowns in the restaurant and leisure sectors as well as school-provided meals have significantly impacted and reshaped food supply chains.

Many agribusiness companies pivoted their distribution strategies to remain profitable. Across the value chain, companies that focused on direct to consumer (DTC), grocery market, and big box retailers continue to thrive as sales grew over the second quarter of 2020.

Additional Support

The Trump administration is expected to invest a record $39 billion in payments to farmers through 2020 to help those affected by trade conflicts and the pandemic, according to the University of Missouri’s Food & Agricultural Policy Research Institute.

Congress is also debating further financial support through the USDA’s Commodity Credit Corp. This is seen by the industry as welcome news because farm bankruptcies, fueled by the pricing pressures caused by the pandemic and record debt levels, continue to rise. Without additional aid, farm income is expected to fall 12% in 2021.

Flat line Exports

Demand drivers impact the export markets even when there isn’t a global pandemic and massive economic shutdown. However, those demand drivers have been even more lackluster than predicted at the start of 2020.

Export markets continue to be challenging for commodity and farm product producers. Additional tariffs, border closures, and heightened trade tensions with China and Europe are expected to cause several key export markets to be unprofitable in 2020.

Planning Considerations

M&A and Valuations Bounce Back

The first half of 2020 trails the levels seen during the same period last year.

The sector is expected to see increased M&A activity through the remainder of the year and into 2021, when buyers and sellers regain their footing post-pandemic and pent-up demand begins to hit the market. 

As the greater market has begun to rebound from the impact of the coronavirus pandemic, the agribusiness market has turned a corner as well. Average enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiples have risen since hitting a multiyear low in March 2020.

Through August 2020, agricultural products and services companies have traded at an average of 11.1x EBITDA while agricultural producers traded at an average of 7.0x EBITDA. These represent significant increases in value since the market bottomed in March 2020, but agriculture producers still lag their prerecession valuation highs.

Sunnier Second Half

Due to the USDA Coronavirus Food Assistance Program increased funding and support for agribusiness companies from the current administration and Congress, the Next Twelve Months (NTM) growth rates are expected to be positive. Agricultural Products and Services growth of 3.8% is expected to outpace the S&P 500’s expected growth of 2.9%. Agricultural Producers are expected to slightly trail the S&P 500 growth, growing at 2.1%.

Recent M&A Activity

Overview of Notable Transactions

Farmers Business Network (FBN)

FBN is the leading direct-to-farm agtech platform and farmer network. On August 3, 2020, it announced the closing of $250 million in Series F Funding. FBN will use the capital to expand its Farmers First FBN Direct range of best value, direct-to-farm inputs including seed, crop protection, and biologicals to help farmers reduce their production costs. It will also invest in building its suite of FBN Crop Marketing and Financial Services solutions to help famers realize their crop value.

  • Lead investor: BlackRock Inc.
  • New investors: Baron Capital Group, Balyasny Asset Management LP, Mandi Ventures, Lupa Systems, and Ron Shaich
  • Existing investors: DBL Partners, Temasek, funds and accounts advised by T. Rowe Price Associates, Inc., GV, Expanding Capital, and Kleiner Perkins
Lineage Logistics Acquires Henningsen Cold Storage Co.

Lineage Logistics, the world's largest provider of temperature-controlled logistics solutions, announced its acquisition of Henningsen Cold Storage, Co., a fifth-generation family business headquartered in Hillsboro, Oregon, offering temperature-controlled warehousing and transportation services.

  • Henningsen’s assets included 14 cold-storage facilities throughout the United States and Henningsen Transportation Services, a transportation division.
  • This acquisition increases the presence of Lineage Logistics in the Pacific Northwest. It follows a series of deals as Lineage pursues a roll-up strategy in the cold-storage market.

Lessons Learned

The disruptions in food systems due to the pandemic reaffirm the need for transformation. In the latter half of the year and beyond, producers and suppliers could continue to thrive if they continue to look for opportunities to increase efficiencies and build stronger regional, national, and global supply chains to reduce potential future disruptions.

Developing strong strategies and practices, managing risk through refining current processes, as well as investing in automation and technology, could help bolster future business valuations resulting in continued investment and interest in the agribusiness industry.

We’re Here to Help

For more insight on agribusiness industry trends and strategies to help manage continued disruption due to the pandemic, contact your Moss Adams professional.