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Can the boom go on? There are bears out there who say that it cannot. They point out that farming is not like mining. There is a finite amount of copper in the ground but that’s not the case with most crops: if you haven’t got enough sugar, you plant some more and, hey presto, 12 months later your problem is solved — which is why fertiliser prices have risen between 40 and 60 per cent this year. Farmers across the world are gearing up to take advantage of high prices. Next season they’ll be using more fertiliser and planting more land: in Europe, ‘set-aside’ is to be abandoned. So we can follow the bears’ logic — but still it’s difficult to see how farmers, however hard they try, can really plant enough of anything to stop prices rising further. In the US, where growing corn has become a licence to print money, only 1.5 per cent more land will be planted next year. This hardly suggests that there’s fallow land going begging in America — or anywhere else. China has only 18 per cent of the area of agricultural land per capita compared to the US, and India only 26 per cent, while soil erosion, desertification and water shortages are continuing problems for many Asian farmers.
The upshot is that we can’t always just plant more sugar or wheat. Supply is limited, both short- and long-term, which means we can expect agricultural prices to keep rising for years to come. We can also expect our own farmers to be markedly more cheerful over the next decade than they have been for the last two: feed and fertiliser costs are going up, but not by as much as the prices of their final products.
That said, if you want to make money out of the soft commodities boom, I wouldn’t rush out and buy a farm in Britain. Our land is priced for the status value it gives bonus boys, not for its financial yield: the cost of the wheat required to make a loaf of bread would have to move way beyond crisis levels for the current price of a fertile Devon acre to make any financial sense. The only relatively cheap land in the UK comes with hill farms and, sadly for the long-suffering farmers of Wales and Shetland, the Chinese don’t much like lamb: its price actually fell this year.
So what else is there? If you’re rich and have nothing better to do, you might look at land in Argentina or in Brazil, or even Australia. But the lazy man’s option — and perhaps the better one — is to buy exchange-traded funds based on the price of a basket of soft commodities (try ETF Grains, LSE code: AIGG) or to buy shares in the CF Eclectica Agriculture Fund which is heavily invested in agricultural products and infrastructure: think tractors, silos, and lots and lots of fertiliser.
Merryn Somerset Webb edits MoneyWeek.
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