Food Production Market Update – August 2024

Food Production Market Analysis Forecasts Long-Term Recovery

Capstone Partners’ inaugural Food Production Market Update reports that macroeconomic pressures—principally, rising input costs and a moderation in commodity prices—are expected to further burden sector participants’ revenue and margins through year-end. However, Capstone’s Food Production market analysis notes that historical consolidation trends coupled with a long-term projection for normalization will support sector growth for the foreseeable future.

After seeing record income levels in 2022 (propelled by inflationary price increases and crop shortages related to the ongoing conflict in Ukraine), farm income is expected to continue falling through 2024, suffering the effects of a sharp decline in commodity prices coupled with rising input costs. Despite near-term macroeconomic volatility, the Food Production sector is expected to stabilize through 2033. Of note, food production levels are expected to increase and net farm income to stabilize as commodity prices and input costs moderate. Additionally, global rising populations alongside increasing food shortages are slated to further drive sector growth and demand for agricultural products in the long-term.

Concurrent with the recent macroeconomic volatility, merger and acquisition (M&A) activity in the Food Production sector has decelerated in 2024, with 29 transactions announced or closed year-to-date (YTD), a 39.6% decrease year-over-year (YOY). Falling crop prices coupled with increased production costs have, in part, contributed to declines in M&A activity YTD, as sector participants grapple with reduced income. Additionally, increased margin pressure from the sharp rise in production costs has seen average sector M&A EBITDA multiples drop between 2021 through YTD 2024, compared to 2018-2020. Nonetheless, market conditions remain ripe for consolidation, especially for smaller-sized operations seeking liquidity options. Capstone also anticipates an influx of sector targets as the average age of U.S. farmers continues to increase and a sale becomes an attractive retirement option.

Capstone’s Food Production market analysis projects that sector participants will continue to leverage M&A and consolidation as a growth tool, as market participants seek to diversify their product sets and capture more of the value chain. This trend has been illustrated by an ongoing decline in the total number of U.S. farms and increase in average acres per farm. Furthermore, up against expanding, fully integrated agribusinesses from here and abroad, farming co-ops and their members have increasingly pursued merger opportunities to increase member bases and gain efficiencies of scale.

Also included in this report:

• A breakdown of farming co-op M&A activity, drivers, and an analysis on a notable merger in the space.
• An overview on notable transactions in the Food Production sector.
• A Food Production market analysis on historical production levels and average prices received by farmers for select commodity-level foods across Fruit & Tree Nut, Livestock, Dairy, & Poultry, and Vegetable & Mushroom categories.

Capstone Partners’ Agriculture Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Food Production Market. Our team partners with leading mid-to-large sized consumer businesses that serve growing end-markets. For more information Food Production market analysis like that featured in this report or to speak with one of our Agriculture Investment Banking Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.