How to Invest in Agriculture Using Canadian ETFs

As I am writing this, the U.S. and Israel war with Iran has entered its sixth week. The Strait of Hormuz remains effectively on lockdown. Crude oil is back above $100 per barrel, and it does not look like these commodity shocks are ending anytime soon.

The second-order effects of this kind of disruption take time to ripple through the economy, but they are wide-reaching. Higher energy prices feed into transportation costs, which then impact shipping, manufacturing, and ultimately the price of goods on store shelves.

While most of the attention has been on energy, there is another angle that is not getting as much coverage. Agricultural inputs are also at risk.

The Strait of Hormuz is not just a key route for oil. It is also used to transport critical agricultural inputs like urea and other nitrogen-based fertilizers, along with various chemical feedstocks used in crop production. If it is being shipped through that corridor, it is now facing delays or outright disruption.

Timing matters here. We are heading into peak agricultural season, when farmers are planting crops, applying fertilizers, and preparing for the growing cycle through the spring and summer months. Any disruption in inputs during this window can have knock-on effects for yields later in the year.

Unsurprisingly, agricultural commodities have already started to respond. On the U.S. side, the Teucrium Agricultural Strategy No K-1 ETF (TILL) is up 9.37% year to date as of April 6. This ETF holds a portfolio of futures contracts tied to commodities like corn, wheat, soybeans, and sugar.

For beginner retail investors, that is not particularly intuitive. You are dealing with roll costs and futures curves, which adds complexity and cost. A more accessible alternative is agricultural equities.

These companies are not direct commodity exposure, but they are still sensitive to price movements. Many of them either produce key inputs like fertilizers and machinery or process and distribute agricultural outputs. That linkage provides indirect exposure to the same theme.

In Canada, the options are limited, and about to become even more so. Here are two ways to invest in agriculture using ETFs from iShares and BMO Global Asset Management.

iShares Global Agriculture Index ETF (COW)

COW one of those ETFs I like simply because the ticker tells you exactly what it does. It dates back to December 2007 and currently has just over $301 million in assets under management. The ETF tracks the FTSE MFC Custom Global Agriculture Index and holds 36 companies.

The portfolio is fairly balanced across the agricultural value chain. Roughly a quarter is allocated to agriculture products and services, another quarter to fertilizers and agricultural chemicals, another to farm machinery, and about 15% to packaged foods and meats. The remainder is spread across food distributors, specialty chemicals, retail, and even a small allocation to agricultural mortgage finance.

Some of the top holdings include Corteva, which focuses on seeds and crop protection, Deere, known for its farm equipment, Archer Daniels Midland and Bunge, which handle global agricultural processing and trading, Tyson Foods, and AGCO.

One interesting data point is how the ETF performed in 2022. During a year marked by high inflation and rising interest rates, real asset-linked sectors held up relatively well. COW returned 12.47% on a total return basis, even as both equities and bonds broadly declined.

Today, the portfolio does not look overly stretched. It trades at a trailing price-to-earnings ratio of about 20.17 times and offers a 1.99% trailing 12-month yield, paid semi-annually.

The main drawback is cost. The management expense ratio sits at 0.71%, which may have been competitive back in 2007, but today it is on the expensive side. A fee reduction would help, but it is not something I would count on.

BMO Global Agriculture ETF (ZEAT)

ZEAT is a bit of a different story, and unfortunately not a great one for investors who like the strategy. BMO has announced that the ETF will stop accepting new purchases and is scheduled to terminate on or about June 19, 2026.

It is a reminder that ETFs are still a business. If a fund does not attract enough assets, the fees it generates are not enough to sustain it. ZEAT, despite being more affordable than COW with a 0.40% expense ratio, only gathered about $4.33 million in assets since its launch in January 2023.

That said, I actually like the construction. ZEAT tracked a portfolio of 29 large-cap global agriculture companies involved in production, chemicals, farming, food distribution, and packaging.

There was significant overlap with COW in terms of holdings, including names like Corteva, Bunge, Zoetis, and Deere, but it also included Canadian exposure through Nutrien, one of the world’s largest fertilizer producers.

The ETF offered an annualized distribution yield of about 1.56%. This figure is calculated differently from a trailing 12-month yield. It takes the most recent quarterly distribution, annualizes it, and divides it by the current net asset value, whereas the trailing yield reflects actual distributions paid over the past year.

It is unfortunate to see ZEAT go, because it offered a lower-cost way to access the theme. But for now, that leaves investors with even fewer choices in the Canadian-listed agriculture ETF space.