That there is an agricultural boom building of immense proportions is now an academic fact. What investors need to be aware of is that this will require a massive amount of investment in infrastructure to allow farmers, agribusiness and investors to enable the sector the capacity to be able to capitalise on these opportunities.
So if we specifically narrow down the boom to one that is largely confined to the bulk commodity sector of grains and fertilizer, it must be appreciated that with bulk comes the need for infrastructure. Infrastructure that has not been invested in because the economic returns on offer have been significantly below that of other sectors such as the metals and energy sectors. But as the global economy begins to slow under expensive energy costs and expensive food costs, the attractiveness of non agricultural investment based opportunities wanes and in this wake comes a new dawn of need. Grain and fertilizer by their bulky nature dictate transportation and storage logistics are areas likely to bottleneck supply capacity as the boom unfolds.
The movement of resources and capacity to the grains and fertilizer sector will also build delayed investment opportunities in the horticultural, fibre and animal protein markets but this represents a gift in investment strategy in moving from one booming food commodity to the next. It is entirely predictable. Its going to be a perpetual game of 'whacking the mole' as one commodity after the other forges record highs and in a surprisingly predictable order. Grains then fertilizer then animal proteins, then fibre and then fruit/vegetables. Demand elasticity will be tested with each and every food. The markets need this to force land to its rightful production niche.
Some natural monopolies exist because those that were operating when the sector was functioning through years of depressed commodity pricing had to get real efficient, real quickly. It quite literally was get efficient or get out. Now as the booming environment unfolds these businesses represent amazingly exciting investment opportunities. Even farming entities themselves have come out of lean times, well lean and mean and ready to steam. Conscious of cost bases down to the last dollar. you can almost certainly guarantee those who are operating in the sector as it comes out of its lows will be set for very very exciting times. The most obvious example being a company such as Inctiec Pivot and also the Australian Agricultural Company. It is no coincidence that despite domestic droughts, share prices have barely registered the latest drought and have in fact outgrown the most bullish of non agricultural sectors.
Lets not for one minute not appreciate there will be risks. Notably from weather and rising energy costs. After all agriculture is now the number two consuming energy sector globally and of course without water we have nothing. It will take a sound understanding of the sector to navigate these risks and minimise exposure to them but understand the risks can be managed.
So the challenge to all investors who are serious in wanting to research (and who wouldn't? Lets face it we all like to make money) and place equity in a position to also greatly benefit from this unique opportunity to now get set with what the market likes to call the positioning of 'smart money' is at hand.
I wish all who take up the challenge the best of luck in their endeavours to seek out knowledge in the agricultural sector for the betterment of their investment capacity. Ears to the ground for all sorts of clues and with the benefit of having viewed how the mining boom has unfolded accept the fact that sectorial booms present predictable profiteering opportunities. Every commodity requires machinery, inputs, service, infrastructure and of course capital to enable profitable production.
The average investor is blessed with the vision of an unfolded mining boom and can now apply that knowledge base to the food sector which is in its early growth stages. What an amazingly gifted investment position to be in? Fat profits to all who work to empower their investments but realise this boom is an entirely negative boom to the overall global economy in the sense that food prices will go much higher. But also understand agriculture needs these price rises to encourage investment to be able to grow with an expanding demand base.
And one final thought to ponder on as our global population explodes, our land base declines, energy supplies become constrained and human resources dwindle (the average age of a farmer globally is around the 57-60 mark). The bull market for timber on Easter Island towards its final days was not limited by anything other than the capacity of the natural resource base. We will test that in the decades ahead and Australia is in the enviable position to be able to be very food secure in extremely trying times.
For what its worth I am happy to help people with any capacity I have in my understanding and experience being a farmer and an active participant in an industry I am so passionate about. I just love farming and treasure our farming know how. Lets get behind our nations agricultural sector. It is going to help carry us through very unfamiliar times ahead. :)
