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February 18, 2011 at 05:53 AM
Remember the old days back in, oh 2010, when metals prices only went up? They had been on a roll for years of course, but 2010 was their year: Steep, sustained ascents were the order of the day.
Metals prices remain near all-time highs, but 2011 is shaping up to be the year of agriculture.
Futures prices for cocoa, coffee and sugar among others are at or near 52-week highs and are sharply above their year-ago prices (especially sugar, which has more than doubled year on year).
That may be sweet if you own the contracts. But if the prices of agricultural-commodities futures, stocks and ag-themed mutual funds and ETFs give you a nose-bleed, there are alternative ways of getting in on the action, and there is still value to be found.
One of the assumptions involved in such investing is that world economic growth is highest in the developing world.
So, while we feel satisfied walking out of a Chinese restaurant having had perhaps a bit too much Szechuan beef, many Chinese consumers now want and can afford more than the three bowls of rice a day they’ve been subsisting on.
Increased affluence in the developing world, where scarcity once reigned, is a long-term driver of demand for food.
Also, regulations and restrictions on land use in the developed world and low crop yields in less developed areas (Ukraine, regarded as the breadbasket of Europe, yields just a third of U.S. levels) mean that the world is not currently set up to supply this higher demand.
Thus, it’s reasonable to suppose that the rise in agriculture will continue for a while to come.
Unfortunately, I haven’t come up with a whole lot of viable ideas: Too many investors got there first.
My initial thought was: Buy public companies sitting on valuable assets that are not fully appreciated by the market, specifically agricultural land.
While you and I have been getting “Dear John” letters from Zillow reminding us of residential property-price declines, farmland valuations have been rising like healthy stalks of grain.
