Climate Change Has U.S. Fund Managers Adjusting Agriculture Investments

The issue is not simply the unpredictability of weather.  Instead, fund managers say, they are struggling to model how extreme weather events from droughts to more powerful storms will affect commodity prices and, in turn, spending by farmers on equipment or seeds.

In November, the U.S. government published a report that found climate change will boost costs in industries including farming and energy production by increasing the frequency and severity of storms.  The U.S.-China trade war has also clouded the outlook for U.S. farmers.

Early estimates of crop and livestock losses from this year’s floods are approaching $1 billion in Nebraska alone, and damages are expected to climb much higher for the region.  The U.S. Department of Agriculture, meanwhile, has no way to compensate farmers for crops that were damaged when floods overtook their record-high stockpiles of grain.

“I just don’t know how to value these companies now,” said Christopher Terry, a portfolio manager at Hodges Capital in Dallas.  “It’s harder to invest around a theme when you’re talking multi-decade impacts.”

More extreme weather in the Midwest, for instance, will boost the cost of grains for feed, which will cut margins of egg producers like Cal-Maine Foods Inc, he noted.  Barge companies such as Kirby Corp that move commodities down the Mississippi River may have more days that operations are out of service because of flooding, he added.

Other fund managers said they were seeking agricultural companies that might actually benefit from more severe weather.

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