Population growth, resource scarcity and climate change are the three defining economic trends of our modern times. Individually, each constitutes a major issue. Together, they are all the more potent. Over time, in line with rising population and economic activity, these trends will converge further and their effects on global commerce will become ever more pronounced. Any sector positioned at the nexus of these trends will offer investors the best opportunity for returns in the mid-term and the potential for exponential returns over the long-term.
Be it the land itself or as part of a rural development project, farm land is proving to be widely invested in. Organic and non-organic options and excellent standards are proving to be a varied investment. Well-functioning markets can also help countries' green growth agendas. Private sector investments in low-income countries are expected to dwarf public sector investments in the future.
Although desiring outstanding performance during the good times, many investors are now placing a greater emphasis on capital preservation during periods of severe market turmoil. An investment in farmland is backed by a rock solid asset in finite supply which is unlikely to depreciate in value. Historically, data shows that farmland has exhibited strong capital protection characteristics over prolonged periods of time. Unlike other depleting resources plays like mining or oil & gas, well managed farmland is a fully renewable resource which remains productive in perpetuity.
Agricultural commodities are natural resources that are generally consumed as part of a human diet, including Coffee, Cocoa, Livestock, Corn, Cotton, Soybeans, Sugar, and Wheat. While human consumption may be the best-known use for these commodities, they are often used widely in a number of other applications as well. Corn, for example, is used in everything from artificial sweeteners to fuel sources to papers and containers.
Agricultural commodities may be appealing as an investment for many reasons. These assets can serve as an effective hedge against inflation, since food prices are often among the first to rise when prices begin to climb. Agricultural commodities can also perform well when global populations are growing, or when a growing middle class leads to increased demand. Finally, agricultural commodities sometimes function as a hedge against volatility in equity markets; geopolitical tensions in emerging and frontier markets often arise as a result of food shortages.
There are a number of ways to invest in agricultural commodities, including ETFs, single stocks, and futures and options.