2012 Investing Trends: Agricultural Demand & Agricultural ETF

A recurring theme for investing in 2012 that people are discussing today involves developing countries. Specifically, trends seem to be surrounding how markets will adapt to accommodate increasing population sizes, and growing levels of wealth. One of the most pervasive investment themes for this trend revolves around the question how it is that we’re going to manage to feed all of these people.

Over the last year, we’ve seen how agricultural products have greatly out-performed the markets as developing countries struggle to supply food for growing human and livestock populations. The end result has been a demand glut that continues to grow. Given that this sort of trend is expected to continue for at least an entire generation, it is important that we examine one of the many ways in which we can benefit as investors.
Perhaps the easiest ways to take advantage of this continuing trend is to invest in the continued success of agri-business. Companies like Agrium and Potash have shown a fantastic ability to generate returns due to their access to scarce fertilizing resources. Granted, the initial rush associated with this sort of investment has already occurred, it is pretty well accepted that there is plenty of room for continued growth over time for these companies.

Alternatively, companies like Monsanto offer an opportunity to get involves with future trends in genetic engineering that will bring to the market. However, all of these companies are generally restricted to being tied to R&D and commodities. An alternative investment opportunity that is gaining a great deal of credibility involves getting involved more with agricultural infrastructure, as opposed to supplies.
Over the next several years, demand for water in agricultural settings is expect to increase by 45%. This means that there will need to be a great deal of new infrastructure in place to transport and deliver irrigation to farmers around the world. As an investor, this provides you with an opportunity to become involved with the companies that supply and management of water for agricultural.

There are a number of ETF products available that would help you gain broad-based exposure to this macro trend, many of which providing a yield because of their nature as infrastructure. However, keep in mind that this is a long-term play, and takes into account macroeconomic forces. You’ll want to talk to your advisor about how it is that these investments fit into your portfolio, and what weighting they should be granted.