Investment Strategies

Harvest “Farm To Fork” Investment Gains, Argues Barings

Wendy Spires Group Deputy Editor London 1 March 2012

Harvest “Farm To Fork” Investment Gains, Argues Barings

Sweeping global demographic shifts that will ratchet up demand for food, feed and fuel mean that there are now some very attractive investment opportunities in the agriculture sector, argues James Govan, co-manager of the Baring Global Agriculture Fund.

Ongoing global demographic shifts can have escaped no one, notably the rise of the world’s population to over 7 billion and the expansion of the global middle class, expected to hit 1.2 billion in 2030, up from 430 million in 2000 (a rise to 16.1 per cent of the global population from 7.6 per cent). Incredibly, the global population explosion means that in the next 50 years agriculture will be called to produce more food than in the previous 10,000 according to predictions from the Global Harvest Initiative.

Against this backdrop, Barings has added its voice to the number of investment houses urging investors to look to agricultural sectors such as fertilisers, seeds, crop protection and machinery for gains in both the short and long term.

“In the short term, we anticipate strong demand for fertiliser and high-quality seeds in the northern hemisphere spring planting season, given the compelling farmer economics and incentive to optimise output. In particular, nitrogen-based fertiliser producers in the US, many of which are located in the ‘corn belt’, with cheap input costs in the form of low US natural gas prices, offer excellent investment opportunities,” says Govan.

“On the machinery side, farmer equipment is closely correlated to farmer profitability and demand for agricultural equipment in North America and Western Europe is likely to remain at high levels due to strong farm cash receipts, with positive implications for companies such as US-based Deere & Co.”

Govan predicts that grain prices are set to remain elevated throughout this year due to inventory levels being low relative to consumption on a historical basis. He is of the view that the outlook for agricultural equities should remain strong over 2012, supported by attractive valuations which came off the back of these stocks being hit by macro concerns and investor jitters last year. He further predicts that the strong long-term demand for food should lead to robust soft commodity prices over time and support strong demand for agricultural products and services – factors which make for a structurally positive outlook for agricultural equities.

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