Investment into agricultural land has faced increased criticism lately, particularly because investment funds of all stripes have been aggressively consolidating arable land in developing nations.
Commentators such as Ambrose-Evans Pritchard believe a backlash has already begun against this latest investment trend.
Many are worried that investors could exacerbate future potential price increases. (Despite the counter-argument that investment in agriculture will expand production and thus help keep a lid on price rises)
Admittedly, we’ve become drawn to soft commodities as well given concerns about infrastructure and property over-capacity in China. These hard commodity worries stand in stark contrast with the current under-capacity in Chinese agricultural production (China has one of the lowest ratios between arable land and population in the world… the government has even warned about a decade-long food shortage.). Thus the bullish view for agricultural soft commodities seems far less likely to be de-railed by a sharp China slow-down, which is probably the number one concern for most commodity markets right now. It’s telling how the hard commodity giant BHP (BHP) is currently trying to acquire the $44 billion dollar fertiliser company Potash Corporation of Saskatchewan (POT), in an effort to diversify.
That’s why soft commodities and the overall agricultural space could have a leg-up on hard commodities (such as iron ore) going forward, and any outrage towards investment in the agricultural space should only make you more confident that profits are ahead. Note that food prices are already soaring globally.