Investors look for opportunities among stocks in agricultural chain
2012-09-14 15:57:28
With climate change and the impact on harvests, agricultural commodity prices have been soaring in recent months, and that in turn is having an impact on where investors are parking their funds.
Corn may just be a humble grain, but it is food, fuel and animal feed all rolled into one.
The recent heat wave in the US - the world's largest exporter of corn - has sent prices popping for corn, wheat and soybean.
Corn prices have gained over 20 per cent year to date, wheat over 35 per cent, and soybeans 47.5 per cent.
Bill Barbour, director, investment specialist, DWS Investments, said: "Climate change and the severity from storms, floods, droughts, that we are seeing - whether they are man made or not - I am not going to enter into it. The facts are that they are more severe than they were 2-5 decades ago... That is causing more intense supply shocks, (and) as growing inventories come down to a very low level you are going to see a very immediate price response."
Other than buying into commodities, some investors are looking for opportunities among stocks in the agricultural value chain.
Allianz Global Investors said farm machinery producers for example, have benefited from the increase in corn prices.
Experts said that there are five tail winds behind agri-businesses, such as climate change, population growth, and competition for biofuels.
Some industry players are putting their funds behind fertilisers to tap into the market potential, because fertilisers can help to improve the yield of a crop.
The DWS Global Agribusiness fund has 47.5 per cent of its portfolio allocation in fertilisers and agricultural chemicals companies, and is heavily weighted in the US.
Mr Barbour said: "Farm incomes in the US are likely to be higher this year than they were last year. Last year there was a net US$110 billion of farm income. This year it is looking like US$122 billion. The reason for that is 85 per cent of farmers have crop insurance - plus the higher prices.
"We have eight fertiliser companies currently in the portfolio, four of those have PEs that are below 8.2. So these companies are relatively cheap... we can see strong demand...they are going to have volume gains and they are going to do very well."
Allianz said that while high prices are positive for input providers like fertiliser and farm machinery, they can weigh on shares of protein producers because feed grain is a major cost of production.