The economic boom in emerging markets has driven up both the value of commodities and the food production process itself.Moreover, the long-term trends look good, with out-sized gains likely to stretch for more than five years, if current emerging market economic growth trends continue.
That suggests the sector is likely to continue to attract new investors, and huge investment funds - - not a conventional source of capital for farming, historically - - have already started making bolder and longer-term food-related investments, by buying farmland, fertilizer, grain elevators, and shipping equipment, The New York Times reported Thursday.
One example: the BlackRock fund group plans to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside, The Times reported.
Farms: the new asset class-of-choice
Economist Glen Langan told BloggingStocks Thursday the investment fund / managed fund money flow in farmland and food is the logical next step for agriculture, given the large gains in global food demand projected for the next 5-8 years.
"The equity markets have not fully come to grips with the enormity of his increased demand, but investment funds are beginning to comprehend it, and the money flow toward farms has begun," Langan said. "Think about this - - China and India combined could add about 3-5 million members to the world's middle class each year over the next decade. Those are consumers with money to spend, and they'll consume more food. And that total does not include expanding middle classes in South America, Eastern Europe, and the Middle East."
Food, Langan said, will not become "the next crude oil" but even moderate global GDP growth models suggest large increases in demand for food stuffs. "Farm land appreciation rates and in selected regions of the world, arable land converted to farms, will exceed historical norms as both food demand and investment flows into the sector increase," Langan said. Langan added that some investment flows will represent conventional hedging tactics, and short-term speculation, but the bulk will be long-term investors.
'Exit commodity spec, enter farm investment'
Further, Langan said ongoing investigations regarding investor activity in commodities and related futures markets - - and the possibility of increased regulation / transparency for these markets - - may magnify the flow of institutional money headed toward farms and agriculture.
"It looks like a classic vertical response. If the profits are high at Point B, I'll invest at Point B. If you then regulate me at Point B, I'll rotate that money to Point A, if the return on investment is there," Langan said. "In this case it's 'exit commodity spec, enter farm investment.' "
Langan added that by mid next decade - - 2013-2015 - - food price increases and farm land appreciation rates will begin to slow, following large increases in food production, but until then food production will represent "an attractive, moderate-risk investment opportunity, for many institutional investors."
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