Canada is the fifth-largest wheat producer in the world. Last year (2022) was especially productive for Canada, and its wheat production grew by 55% to 34.7 million tonnes of wheat.
Viterra is considered one of the largest wheat companies in Canada and handles/stores a significant segment of the grain produced in Canada.
As the world’s second most consumed staple food (after rice) and the primary staple food for about a third of the global population, wheat is a critical component of the global food supply chain.
In this article, you will learn about Canadian stocks that give you exposure to it.
- Decent long-term holdings.
- Healthy dividends.
- High concentration of blue-chip stocks.
- Indirect exposure to wheat.
- A high degree of overlap with other sectors.
Best Wheat Stocks in Canada
Before we dive into the best wheat stocks in Canada, it’s important to understand that there are no “pure” wheat stocks in Canada.
By pure, we mean that no publicly traded company has enough exposure to wheat that, as the underlying commodity, wheat significantly influences its price movement.
That’s partly because almost all of the wheat stocks on this list are for companies that support the wheat industry via fertilizer, supply chain, and infrastructure, and none are for companies that represent the wheat industry, i.e., the wheat producers.
Still, the following five stocks have the highest exposure to wheat as a commodity.
1. Canadian National Railway
- Ticker: CNR.TO
- Forward Dividend Yield: 1.88%
- Dividend Payout Ratio: 39.38%
- Dividend Yield (12-Month Trailing): 1.97%
- Upcoming Dividend Date: Dec 28, 2023
- Market Cap: $101.84 Billion
- Forward P/E Ratio: 19.85
Canadian National Railway is Canada’s largest railway company (by market cap) and has an impressive railway network of about 20,000 miles connecting three major North American ports.
This presence itself makes it a significant link in the wheat supply chain. The company transports millions of tonnes of grains every year, and wheat makes up the most significant portion of this grain transportation.
The railway has invested significantly in infrastructure dedicated to grain/wheat transportation, including elevators and dedicated cars transporting grain for internal consumption and processing as well as export.
As a stock, Canadian National Railway is a great pick for its growth potential, even though it’s a well-established dividend aristocrat.
The reason is its relatively low yield. But the capital appreciation potential is quite strong, and the stock rose about 230% between April 2013 to April 2023.
2. Canadien Pacifique Kansas City
- Ticker: CP.TO
- Forward Dividend Yield: 0.69%
- Dividend Payout Ratio: 20.16%
- Dividend Yield (12-Month Trailing): 0.78%
- Upcoming Dividend Date: Jan 29, 2024
- Market Cap: $91.14 Billion
- Forward P/E Ratio: 21.69
Canadien Pacifique Kansas City (or CPKC) used to be Canadian Pacific Railway but a major US-based acquisition, which made it the only railway to connect three North American countries (Canada, US, and Mexico), has allowed the company to evolve. But many things remain the same.
For example, grain (particularly wheat) is still one of the largest business segments of CPKC.
CPKC’s strength in the wheat supply chain comes from its Dedicated Train Program (DTP), which allows Canadian wheat producers/exporters and other stakeholders to control their own train assets for up to 12 months.
This, combined with its infrastructure, which includes 235 elevators in Canada alone, gives the company a lot of exposure to wheat.
While it’s not as consistent, the CPKC stock has been a more substantial grower compared to the other Canadian railway giant. The stock has risen by about 330% between April 2013 and April 2023.
It also pays dividends, but the yield is usually quite low, making its growth potential the primary reason to consider this wheat stock.
- Ticker: NTR.TO
- Forward Dividend Yield: 2.98%
- Dividend Payout Ratio: 13.54%
- Dividend Yield (12-Month Trailing): 2.72%
- Upcoming Dividend Date: Jan 12, 2024
- Market Cap: $37.72 Billion
- Forward P/E Ratio: 11.12
As one of the largest fertilizer companies in the world and the largest fertilizer company in Canada, Nutrien plays an important part in wheat production, not just in Canada but around the globe.
The spring wheat, which makes up the bulk of the country’s wheat production, requires more Nitrogen fertilizer than some other variants, and as the third-largest global producer of Nitrogen, Nutrien is well-equipped to meet this demand.
About one-fifth of the global farms cultivate wheat, and as one of the largest producers of crop inputs, Nutrien will be directly affected by a drastic shift in wheat production.
If Nutrien’s wheat market shrinks in the future and is replaced by a crop that requires more crop inputs, the company may benefit. But the company may suffer if it’s replaced by a crop less reliant on Nutrien’s crop inputs.
The stock has been inconsistent when it comes to growth, but it’s a reliable dividend stock. It has exhibited decent capital appreciation potential in the right market conditions, so it may be worth buying in a healthy bull market (for growth).
4. Ag Growth International
- Ticker: AFN.TO
- Forward Dividend Yield: 1.02%
- Dividend Payout Ratio: N/A
- Dividend Yield (12-Month Trailing): 1.2%
- Upcoming Dividend Date: Oct 16, 2023
- Market Cap: $955.52 Million
- Forward P/E Ratio: 8.71
AG Growth International is an agriculture/food infrastructure company with five platforms. Grain is one of these platforms, and the company offers a wide range of solutions pertaining to grains like wheat.
This includes solutions like storage, transportation, processing, and technologies. Thanks to its diverse portfolio, its exposure to wheat is relatively minimal.
AG Growth has a decent international presence, and it’s growing as an agricultural infrastructure company. The solutions it offers allow it to cater to a diverse range of agricultural clients.
Most of the company’s individual solutions (under each of the five platforms) are known to the market by their own unique brand presence.
As a stock, AG Growth is cyclical in nature. When the cycle goes up, it’s possible to generate decent returns with this stock via capital appreciation. An example would be its 120% growth between August 2021 and April 2023.
It also pays dividends though its payout history doesn’t establish it as a reliable long-term dividend stock.
Itafos is another Canadian fertilizer company that develops and sells phosphate-based fertilizers. It has a decent international presence which includes mining facilities and fertilizer production facilities.
The two most heavily produced fertilizer products from its largest facility (Conda) are used by wheat producers.
The company is well-positioned to cater to not just Canadian wheat producers but wheat farmers across the globe, especially in the Americas. It also has a decent US presence, making it different from others, more Canadian-focused wheat stocks.
As a stock, Itafos had fallen to great depths from its 2013 valuation (when the stock was at its peak). One benefit of this fall is that modest bullish trends can shoot the stock up at a powerful pace. It went up 200% in just four months between January 2022 and April 2022.
One important factor you need to consider before you invest in wheat stocks in Canada is the indirect exposure these stocks offer you to the underlying commodity. Wheat is just one part of their otherwise extensive service/product portfolios.
For many of them (Except perhaps Canadien Pacifique Kansas City), even a significant disruption in wheat demand and supply chain may not result in major stock fluctuations.
This indirect exposure undermines the relationship that exists between a commodity and its stocks. But it’s still a good idea to take factors associated with wheat as a commodity into account before you make an investment decision.
- Canada is among the five largest wheat exporters in the world, and the most prominent export destinations (China, Indonesia, and Japan) can easily opt for more conveniently located exporters like Russia or Australia.
- Wheat is uniquely vulnerable to global political conditions. In 2023, sanctions imposed on the world’s largest wheat exporter (Russia) led to one of the most significant declines in consumption in decades.
- Wheat price fluctuations are quite sharp, going up and down by as much as 150% to 200% in less than a decade. However, wheat stocks in Canada do not reflect these fluctuations.
As a food staple and crop billions of people depend upon, it’s highly likely that we may see an organic decline in consumption, i.e., people opt away from this food staple.
However, factors like climate change that impact all other agricultural crops/outputs may have a drastic impact on wheat as well. In fact, it’s more vulnerable to climate change than many other crops.
Technology may have answers to some of the problems wheat is facing right now, but again, any shift in wheat production and consumption, even when influenced by factors like war, might be gradual enough not to sway the wheat stocks in Canada in a particular direction.
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Wheat stocks in Canada are a uniquely diverse bunch. You have consistent growers, dividend stocks, and companies that can offer powerful short-term growth in the right market conditions.
However, their weak correlation to wheat as the underlying commodity would require you to analyze from a lens/perspective far richer than wheat.
If you are looking for broader exposure to the agricultural sector in Canada, these stocks might be a better fit.