Agricultural Assets: Shelter from the Storm
In their iconic 1969 recording “Gimme Shelter,” the Rolling Stones sang: “Yeah, a storm is threatenin’ my very life today. If I don’t get some shelter, Lord, I’m gonna fade away…”
The Stones may have been singing primarily of emotional rather than physical shelter, but the refrain could easily apply to today’s stormy investment climate.
Besides washing your hands, what can you do to survive the coronavirus pandemic? Below, I’ll highlight a “defensive growth” theme that’s getting scant attention from analysts and the financial media.
Markets extended their losses Wednesday, essentially wiping out all gains that have occurred since President Trump assumed office in January 2017. The entire Trump stock rally is gone.
Investors yesterday were subjected, yet again, to the frightening spectacle of circuit breakers kicking in, to temporarily halt the downward slide to allow investors to catch their breath.
Before the opening bell Thursday, stock futures bounced between gains and losses. Investors today are digesting new stimulus moves from U.S. and European central banks and an aid package signed by President Trump. Starting Monday, the New York Stock Exchange will close its trading floors and shift to all-electronic trading.
As the coronavirus pandemic spreads and undermines the global economy, expect extreme volatility in the equity markets to continue.
There’s a lot of enthusiasm these days for gold, which only makes sense. The yellow metal is a traditional safe haven during times of crisis. For the best gold play now, click here for our special report.
Gold should pay off handsomely in the coming months. But there’s another crisis hedge that many investment advisors tend to ignore: agricultural commodities.
The next great geopolitical struggle could be over food. Many experts predict that there won’t be enough food to feed growing populations.
The world is consuming more food than it produces, largely because of population growth, rising affluence in developing nations, and extreme weather in major food-exporting countries. Poverty fighting organizations such as Oxfam predict that the price of key staples, including wheat and rice, could double over the next two decades.
We still gotta eat…
The coronavirus is shuttering factories, stores, schools, restaurants, theme parks…you name it. Entire cities are in quarantine. Travel is severely restricted, battering airlines and related industries. The ripple effects are punishing the global economy. We’re currently mired in a bear stock market.
But through it all, human beings still require food.
According to a recent United Nations report, the world must increase food production to meet demand by 50% by the year 2030, and by 80% by the year 2050. So yes, long-term demand is there. And short-term demand just became more acute, as the coronavirus disrupts farming around the globe and causes shortages throughout the food supply chain.
This chart from the non-profit International Food Policy Research Institute depicts the multi-year growth trajectory for agriculture:
One time-proven strategy to build wealth is to tap into trends with sustainable momentum that will unfold regardless of financial and economic ups and downs. By investing in plays that benefit from sweeping global transformations, you can settle in for the long haul and ride out crises such as the coronavirus pandemic.
If you’re risk averse and seek safer and easier plays on agriculture, consider exchange-traded funds (ETFs). Agricultural ETF portfolios invest in grain and feed products, oilseeds, cotton, corn, wheat, soybeans, cocoa, coffee, sugar, dairy, livestock, poultry, and/or horticultural products. These funds can invest directly in physical assets, the equities of major agri-businesses, or commodity linked futures contracts.
Agricultural assets face multiyear tailwinds, as the globe contends with a looming food crisis. Climate change poses a particular threat to agriculture, as farmers try to get greater yields from a diminishing quantity of arable land, to feed ever-growing populations.
The ag-tech revolution…
In recent months, pressure on commodity prices and uncertain growth in emerging markets have weighed on agricultural funds and equities, making them reasonably priced now. These investments should rise in 2020 and beyond as commodity prices recover and socio-political forces (combined with environmental anomalies) create greater food shortages.
Another angle on agriculture involves technology companies that help boost farm efficiency. Compared to 1950, the world’s farmers currently produce 262% more food with 2% fewer inputs. Mechanization and improved methods have boosted efficiency, allowing fewer farmers to produce more food.
Farming in the U.S. and around the world is undergoing an “ag-tech” revolution. Robotics and artificial intelligence are getting into the act. Many farm producers are even putting pilot-less drones to good effect, for spraying and crop inspection.
We’re witnessing the profitable confluence of several relentless trends: the coronavirus pandemic, political turmoil, agricultural destruction, population growth, the rise of ag-tech, and an expanding global middle class. Together, these trends create powerful tailwinds for agricultural commodities, the often neglected hedge for times of crisis.
Looking for ways to shelter your wealth from today’s financial storm? I’m here to help: firstname.lastname@example.org
John Persinos is the editorial director of Investing Daily.