The commodities opportunity you might be missing (and 3 ASX stocks to get on board)

Commodities and commodity stocks have been all the rage over the past 12 months - and rightly so. 

An insatiable AI build-out, the Iran War, and investors' need for safe-havens have seen the likes of copper, gold, and oil take centre stage, whilst uranium, lithium and other metals have each had their moment in the sun. But another commodities opportunity could be brewing.

Morgans believes conditions are “ripening” for soft commodities, with two genuine supply shocks hitting global agriculture at the same time. Rising geopolitical risks are disrupting grain exports through the Black Sea, while the prospect of El Niño threatens agricultural and fishmeal supply.

For investors, Morgans believes the combination could create opportunities across several ASX-listed stocks, with Nufarm (ASX: NUF) its top pick, alongside GrainCorp (ASX: GNC) and Bega Group (ASX: BGA).

As Morgans puts it:

“In this environment of higher inflation, hard commodities have provided investor portfolios with good alpha. Conditions are ripening for soft commodities to do the same with two genuine supply shocks hitting agriculture simultaneously.”

Supply shock number one: the Black Sea

The first catalyst is geopolitical. According to Morgans, world food prices rose for a third consecutive month in August, with the FAO Food Price Index reaching 133.3 points, up 1.9% month-on-month and sitting around a four-year high.

It remains roughly 17% below its March 2022 peak, but the direction of travel has changed. The key issue is the Black Sea.

Morgans notes that since July, Russia and Ukraine have been targeting each other’s Black Sea ports, severely disrupting the infrastructure that connects two major agricultural exporters with global markets.

Ukraine’s Odesa terminals, which Morgans says handle more than 90% of the country’s wheat exports, are close to idle. Meanwhile, all but one Russian terminal across the Black Sea and Azov Sea is shut.

The impact on exports has been significant.

“Russian exports are at their lowest since 2016, Ukraine’s at a 16-year low,” Morgans says, excluding the temporary standstill following Russia’s 2022 invasion.

That is already being reflected in prices. Morgans notes CBOT wheat at around US$7.28 a bushel is approximately 40% higher than a year ago.

Diplomatic efforts could ultimately change that picture. But Morgans notes that US envoys Steve Witkoff and Jared Kushner recently left the Kremlin with a three-day pause on strikes against Moscow and Kyiv, but “no deal on grain”.

In other words, one of the world’s major agricultural export routes remains under significant pressure.

Then there is the weather

The second shock is potentially just as important.

Morgans points to IFPRI forecasts showing 2026/27 wheat production across the world’s seven largest exporters falling 11% because of drought.

At the same time, it sees “near-certain odds” of El Niño conditions running through to February 2027. Australia presents something of a mixed picture.

Morgans highlights ABARES’ 1 September forecast, which lifted the Australian winter crop estimate by 12% from June to 61 million tonnes. 

Excellent conditions across South Australia, Victoria and southern New South Wales have helped, although the national crop is still expected to be down 12% year-on-year and conditions remain tougher in northern NSW and Queensland. But El Niño creates another investment angle beyond grain.

Warmer waters off Peru can reduce anchovy catches, with flow-on effects for global fishmeal and fish oil supply.

Morgans says Peru’s first anchovy quota was cut 36% to 1.9 million tonnes, with only around 25% caught before the fleet was stood down on 10 June.

“Fishmeal and fish oil prices have risen strongly; in the 2023 El Niño, fish oil prices more than doubled,” Morgans says.

That brings us to its preferred ASX exposure.

Nufarm (ASX: NUF): Morgans’ top pick

Nufarm is Morgans’ top agricultural pick and, importantly, its preferred hedge against El Niño.

At first glance, dry conditions might appear negative for an agricultural chemicals business because they can reduce demand for crop protection products.

But Morgans believes Nufarm has a natural offset through its omega-3 business.

“If dry conditions hit crop protection sales, higher omega-3 prices will offset, as fish oil prices respond to a reduced fish catch in Peru when the water warms,” Morgans says.

There is also a company-specific turnaround underway. Morgans says Nufarm’s new management team continues to turn the business around, reduce gearing and improve the quality of earnings. 

Its first-half FY26 result came in at the upper end of guidance, which Morgans believes sets the company up for strong FY26 EBITDA growth under normal seasonal conditions. The next potential catalyst is Nufarm’s Investor Days on 28 and 29 September.

Morgans has a BUY recommendation and $4.15 target price, which at the time of the research implied approximately 29% upside. It forecasts Nufarm trading on 5.0 times FY27 EV/EBITDA with a 1.3% yield.

GrainCorp (ASX: GNC): the more direct grain trade

For investors looking for more direct exposure to rising grain prices and volatility, Morgans points to GrainCorp.

It describes GrainCorp as the “short-term grain price play”, although the shares had already begun to run at the time of the research. The opportunity is not simply higher grain prices.

“Grain marketing margins feed on this volatility and crush margins are buoyant in line with rising oil prices,” Morgans says.

There is a balancing act here. Good rainfall across southern Australia points to a decent crop this year, supporting volumes through GrainCorp’s network. Longer term, however, El Niño conditions pose a risk to next year’s Australian crop.

Morgans rates GrainCorp ACCUMULATE with a $7.48 target price. It forecasts the company trading on 7.2 times FY27 EV/EBITDA with a 4.2% yield.

Bega Group (ASX: BGA): a different way to play the theme

The third stock is Bega Group, although Morgans stresses that this is not a direct agricultural inflation trade. Instead, its appeal lies in changing consumer behaviour.

Bega is exposed to the shift towards protein and health and wellness, with Morgans pointing to GLP-1 adoption as a potential driver of yoghurt and milk-based beverage consumption.

At the same time, the company has responded quickly to higher costs.

“BGA moved quickly on Middle East cost pressures with surcharges across its ranges and picks up consumers trading down to private label white milk,” Morgans says.

The broker believes Bega’s FY28 and FY31 growth targets support a solid earnings growth profile, although after the share-price performance it is less bullish on valuation.

Morgans has a HOLD recommendation and $7.05 target price, with Bega trading on its forecast 8.8 times FY27 EV/EBITDA and offering a 2.8% yield.

Don't want to pick stocks? There is an ETF route

For investors who like the agricultural thesis but not the company-specific risk, Morgans also highlights several ETFs.

Three are US-listed diversified natural resources funds: State Street’s GNR, which splits its exposure broadly across agriculture, energy, and metals and mining; VanEck’s HAP, which adds renewable energy exposure and has Deere as its largest holding; and Northern Trust’s GUNR, which similarly spreads its portfolio across energy, metals and agriculture.

Closer to home, Morgans highlights the Betashares Global Agriculture ETF – Currency Hedged (ASX: FOOD).

FOOD is the more targeted agricultural exposure of the group, holding 68 companies at the time of the research and charging a management cost of 0.57%.

The fund was relatively small at around $84 million, but it offers Australian investors a way of accessing the theme without having to decide which individual agricultural company ultimately emerges as the biggest beneficiary.

After a year in which gold, oil and metals have consumed so much investor attention, Morgans’ message is that the commodities trade may be broadening.

Ports are being disrupted. Weather patterns are turning. Food prices are already rising. And if those pressures persist, soft commodities may not remain the quiet corner of the commodities market for much longer.