Going against the grain may be costly. Investing in agriculture today will be like investing in oil in 2001 to 2002 when oil prices halved to US$17 per barrel says Marc Faber editor of The Gloom, Boom & Doom Report. Agricultural commodities fell by half from June 2008 highs, but fundamentals remain strong says Faber.
Faber points to a weak build in agricultural stocks (supplies) during the bumper harvest year of 2008. Low stocks, declining productivity, and increased demand persist from a long term perspective says Faber and will drive prices higher. Population growth is rising until 2030 and will have produced an additional billion mouths to feed between 2000 and 2012 alone.
Faber is well known for highlighting long term trends in asset prices through a careful read of history. He points to the Green Revolution between 1976 to 1986 as the era when growth in food production transitioned from increased land usage to higher yielding agricultural methods yet those benefits have run their course. Productivity fell by almost half between 1990 and 2007 and will continue that trend over the next decade.
Faber recommends only one-third allocation to commodity futures products due to the negative carry costs in those markets and also warns against farmland companies due to poor yields. One third of investor capital should go to listed agricultural companies and the other third to private companies. The long term opportunity is now.
(from Financial Post, May 12, 2009)