The 'Bull Run' in Soft Commodities
22 January 2008
Soft Commodities have overtaken their 'hard' counterparts during 2007 as the prime performers in the commodity investment market. Whilst there are established commodity markets to trade on and some funds available, increasingly investors are looking to gain exposure directly through investment in farmland, farming and associated benefiting activities.
Richard Warburton, Head of Agribusiness at Bidwells considers the question of whether this upturn is part of a commodity cycle or a structural shift in world agriculture and explores what 'know how' is required to exploit potential opportunities "The underlying fundamentals of growing populations, increasing income levels, urbanisation and new demand pulls from fuel and bioenergy are strong and long term" believes Mr Warburton. "It is however far from clear how quickly world agriculture will react to these rapidly changing pressures. Availability of land and vital water resources is a debate which is profoundly affected by the often conflicting demands of feeding the world and environmental sustainability.
Technology will play a vital future role but it is as yet largely unidentified. The potential for a resultant re-ordering of world agriculture should not be discounted. This may well include a shifting of production blocks based around technologies and the efficient use of land and water. The level of uncertainty suggests this could a longer upturn than most. Short of unforecastable global shocks, firmer farmgate prices around the world offer a compelling and potentially long term platform for investment" believes Mr Warburton. "Care is needed though" stresses Mr Warburton. "Good advice is critical in determining the selection of assets and the most appropriate strategies.
To optimise returns in this potentially volatile sector requires higher management levels and costs than investors and fund managers will be used to in other property asset classes.The financial institutions have been out of agriculture for a very long time and whilst they are well equipped to assess macro-investment issues, the skills and understanding required to optimise asset selection and operating returns are in the main lacking.At Bidwells we believe we are uniquely placed to assist with these assessments" concludes Mr Warburton.
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