It's all too easy to become caught up in the shifting sentiment and short term fluctuations of the stock market. The recent jitters are no exception, and it's particularly important during these times not to lose sight of important longer term trends and investment opportunities.
The case for investing in agricultural commodities is straightforward and compelling. It is predicted the world’s population will grow significantly over the coming decades from nearly 7 billion today to approximately 9 billion in 2050. There will be additional demand for all types of 'soft' commodities from grains, such as rice and wheat, to livestock such as cattle to support the extra 2 billion people. Furthermore, we are already seeing widespread dietary change in emerging nations as their populations grow more affluent. Demand for meat in particular could rise much further as these countries continue to aspire to a western style of living. It takes on average 4kg of grain to produce 1kg of meat, so it is not just prices of livestock that might increase if this trend continues.
Significant investment in agriculture will be necessary to meet these challenges. There may even be shortages of certain commodities at times, perhaps as a result of extreme weather conditions or other rogue factors, which will cause prices to rise. As well as additional pressure on agricultural commodities, valuable resources such as fertile land and supplies of water (for which there are no substitutes) could also provide investors with interesting opportunities. Despite all this many commodity prices have recently been hit by supply gluts, as well as receding speculative interest as investor sentiment turned sour. Of course both of these factors may continue in the shorter term, but I believe in the long run agricultural commodities (and many related industries such as irrigation and fertiliser production) represent an important area of growth.
Investors can gain exposure to the performance of individual commodities via Exchange Traded Funds (ETFs). However, these tend to be highly speculative because prices can be erratic and volatile with each commodity having its own unique supply and demand factors. For instance, sugar is pushing multi decade highs presently as supply has been constrained by adverse weather conditions in India and Brazil, two of the largest exporters. Meanwhile corn and wheat prices have languished following reported bumper world harvests. I believe a better way to benefit from the long term trends in agricultural commodities is via funds such as Sarasin AgriSar and Eclectica Agriculture, which offer exposure to a range of companies operating across the agricultural supply chain. They are both higher risk, specialist investments featured in our Wealth 150 list of favourite funds in each sector.
Key features for Sarasin AgriSar Fund
Key features for Eclectica Agriculture Fund
The case for investing in agricultural commodities is straightforward and compelling. It is predicted the world’s population will grow significantly over the coming decades from nearly 7 billion today to approximately 9 billion in 2050. There will be additional demand for all types of 'soft' commodities from grains, such as rice and wheat, to livestock such as cattle to support the extra 2 billion people. Furthermore, we are already seeing widespread dietary change in emerging nations as their populations grow more affluent. Demand for meat in particular could rise much further as these countries continue to aspire to a western style of living. It takes on average 4kg of grain to produce 1kg of meat, so it is not just prices of livestock that might increase if this trend continues.
Significant investment in agriculture will be necessary to meet these challenges. There may even be shortages of certain commodities at times, perhaps as a result of extreme weather conditions or other rogue factors, which will cause prices to rise. As well as additional pressure on agricultural commodities, valuable resources such as fertile land and supplies of water (for which there are no substitutes) could also provide investors with interesting opportunities. Despite all this many commodity prices have recently been hit by supply gluts, as well as receding speculative interest as investor sentiment turned sour. Of course both of these factors may continue in the shorter term, but I believe in the long run agricultural commodities (and many related industries such as irrigation and fertiliser production) represent an important area of growth.
Investors can gain exposure to the performance of individual commodities via Exchange Traded Funds (ETFs). However, these tend to be highly speculative because prices can be erratic and volatile with each commodity having its own unique supply and demand factors. For instance, sugar is pushing multi decade highs presently as supply has been constrained by adverse weather conditions in India and Brazil, two of the largest exporters. Meanwhile corn and wheat prices have languished following reported bumper world harvests. I believe a better way to benefit from the long term trends in agricultural commodities is via funds such as Sarasin AgriSar and Eclectica Agriculture, which offer exposure to a range of companies operating across the agricultural supply chain. They are both higher risk, specialist investments featured in our Wealth 150 list of favourite funds in each sector.
Key features for Sarasin AgriSar Fund
Key features for Eclectica Agriculture Fund
