Back to Basics – Agriculture is Still in a Bull Market

Those that follow my work will know I have been bullish on commodities since 2002. In 2003 I held a seminar in London together with respected global investor Jim Rogers where I explained why I was allocating a large part of my wealth to commodities.

My view has not changed; this still is a commodity bull market and those that don’t have an exposure to commodities are missing out. Before I address the current situation I was re reading Hot Commodities by Jim Rogers where he states “Warning There will be setbacks, I cannot promise a stairway to heaven. No bull market in any asset has ever gone straight up”

Many forget that all Bull markets have set backs, the stockmarket did not go up in a straight line between 1982 to 2000 it had many set backs, but it was a bull market. If we say this bull market started in 2000 and a typical bull market lasts 18 to 20 years then we still have some time to go.

The problem with traders and investors is they tend to have short memories and a tendency to focus on recent data.  Let me give you an example: Monsanto (NYSE:MON) one the worlds leading seed provides is up over 473% in the last 5 years, agreed it is down around 40% over the last 12 months – but the trend remains up.

Most investors based in Europe and the USA forget how small a part of the world we are, and the true growth is coming from China,India and other developing economies. Lets face it the UK, Europe and the USA have had their best years, they have had their years of growth and consumption, its now time for other countries to lead.

Regardless of what your nationality is and where you live everyone consumes agricultural and soft commodities and will continue to do so. As the global population continues to grow and living standards increase in developing economies so does calories consumed.  Forget about all they hype about more cars, TVs, fridges I am talking about the developing economies trading up from just rice to maybe rice and pork or rice and chicken.

I would guess that 95% of those reading this do not own any agricultural commodities, I see 1000’s of financial advisors and fund managers investing their clients money in the stockmarket, property, bonds but when it comes to commodities bar a few specialise funds, its unheard of to have a holding in commodities. I often hear commodities are “risky” these are the same people that invest in shares which may I remind you are far riskier than commodities, shares go to zero, no commodity has ever gone to zero.

For the last 30 years or so those leaving colleges and universities have aspired to go and work in the service sector and the financial sector as these areas have boomed and provided the best working conditions and salaries.  Not many people have left to go in to farming but that could now change.  I see the service sector declining for the next 10 to 15 years, we don’t need so many banks, insurance companies, travel companies, restaurants or retailers. These businesses certainly in Europe and USA will have a decade of contraction where as farming will be in expansion mode.

So how do you get an exposure?

The easiest way is still exchange traded funds, you can buy these via a stockbroker and they can be placed in a pension/SIPP or held in a normal account. Owning the ETFS outright means your no subject to margin calls or leverage.  ETFS Agriculture (LSE:AGAP) and ETFS Softs (LSE:AIGS) would give you a good exposure. Livestock over the longer term should also benefit ETFS Livestock (LSE:AIGL)

If you’re willing take a little more risk then investing in agricultural based companies is another angle. I suggest the EFT Market Vectors Agribusiness (NYSE:MOO which has good range of companies involved in fertilizer including  Potash Corp, Syngenta, Archer Daniels Midland, Deere, Monsanto and Yara Intl.