2011 - Investment Opportunities in Agriculture
Mick Davis
There are long and short term opportunities. We have identified a clear and continuing demand for food production. So, what are the investment opportunities in agriculture? We see the ongoing trend of urbanisation competing for land, the availability of water and the requirement to incentivise investment in the agricultural sector, will lead to higher soft commodity and land prices. The long-term investment case for the asset class is exciting, driven by the sustainable global demand drivers of food, feed and fuel and the relative inelasticity of supply.
This delicate balance between supply and demand has led commodities to be vulnerable to short term volatility. A limited number of factors such as the number of plantings, natural disasters, disease and blight, can quickly combine to limit supply and drive prices up. Agricultural commodities increasingly attract the attention of the short term speculators. We have seen this in 2010 with global wheat prices and oilseed rape futures.
The risk of trading on the futures may not be your thing, so what long term opportunities are out there?
For those with capital the old saying still rings true ‘buy land, they’re not making it any more’. In the UK, values have increased 24% since the start of 2009. It has come through the recession strongly and with demand high and commodities doing well, we can expect to see further rises well into the future. So if the headache of balancing profitable food production against rising input costs and cutthroat supermarket buyers doesn’t appeal, being a land owner could be for you.
If current trends continue, investment in any areas of the sector could do well. With the business of feeding the world booming and farms moving closer to the forefront of the energy and science industries, agriculture merits consideration for any well diversified, long-term investment portfolio.
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