3 cheap, high-risk agriculture ASX shares that could make high returns

Here are 3 cheap, high-risk agriculture ASX shares that could result in high returns.

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The agriculture sector is taking a bit of a beating at the moment.

Australia's regional areas are suffering from the tough drought conditions which is hurting crop yields and there hasn't been much of an upswing in food prices because of how much market power the large supermarkets of Coles Group Limited (ASX: COL) and Woolworths Group Ltd (ASX: WOW) have.

The best time to buy cyclical shares is at the bottom of the cycle. So, these three ASX shares could be good ideas:

Costa Group Holdings Ltd (ASX: CGC

Australia's largest horticultural business has seen its share price fall 64% over the past year with issues affecting its citrus farms and berry farms, with lower demand hurting some of its other produce categories too.

A capital raising at a heavily discounted price has strengthened the balance sheet but earnings are not guaranteed to recover any time soon.

But, over the long-term this business may have a good future with its expansion in three different continents.

Vitalharvest Freehold Trust (ASX: VTH) 

Vitalharvest is an interesting one because all of its farms are leased to Costa. Vitalharvest receives a solid base rent from Costa and also receives a percentage of the underlying earnings too.

The current share price is almost the lowest it has ever been, but the farms and water entitlements do have an underlying value higher than the share price, even if December 2019 result may not produce much of a distribution for investors.

Vitalharvest may potentially have lower risks than Costa, but it probably has less growth potential unless it starts making some interesting acquisitions.

Duxton Water Ltd (ASX: D2O

The drought has actually been a good thing for Duxton Water because its water entitlements have significantly gone up in value.

However, over the medium-term there is a risk that these dry conditions turn into a wet period and drive down the water price. Another risk is that the ACCC is currently investigating the Southern Murray Darling Basin water market. Some players have criticised the role that Duxton Water plays as an investor and not a user of water.

But don't forget that Duxton's water is being used by agriculture businesses. 2019 may be the driest year on record, so it's not surprising that water prices have risen so much.

Foolish takeaway

All three businesses have interesting risks and opportunities. Costa could be very interesting for investors with a high-risk tolerance willing to think long-term, but I'd rather invest in Duxton Water because of its large discount to the net asset value (NAV) and the steadily-growing dividend.

Motley Fool contributor Tristan Harrison owns shares of COSTA GRP FPO and DUXTON FPO. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia has recommended DUXTON FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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