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  • Potash One Will Be Top Performer in Agriculture Bull Market
    The author highlights a fundamental issue for future farm profitability and land values is whether demand for food or demand for energy (fertlisers) is more inelastic. The article and recent farm income data supports the intuitive conclusion that food demand is much more inelastic than fertilizer demand. If this continues, farm profitability to continue to expand and drive land values with it.

    On a more general note, the equity and bond markets have benefited from a long period of low inflation, but ongoing and massive central bank liquidity injections point to a far less benign environment of elevated inflation ahead. Research by our firm, Agcapita Farmland Investment Partnership (Calgary based agriculture private equity firm) shows investors must be prepared to rotate into asset classes with different characteristics.

    During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland. Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms), cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return) and the S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)

    Like the author, I believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:
     Corn is US$ 5/bushel currently compared to US$16/bushel in 1974,
     Wheat is US$ 7/bushel currently compared to US$27/bushel in 1974
     Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981

    Sep 18 20:20 pm |Rating: 0 0 |Link to Comment |View article

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