According to U.S. Agriculture Secretary Tom Vilsack, “agriculture continues to be a bright spot” in the otherwise dull U.S. economy. Farming, along with natural resources production – read: oil – is one of the few bright spots, writes Financial Times Commodities Editor Javier Blas in a recent article.
2011 marks the fourth consecutive “boom” year experienced by the U.S. agri sector. As U.S. production of staple food commodities, particularly corn, has grown, net farm income has nearly doubled over the past decade. With prices reaching record highs, the nation’s farmers are poised to bring in over $100 billion, up from $50 billion in 2001.
Surging income levels for farmers has been a boon to the agribusiness sector. As we have reported previously, agricultural equipment maker Deere & Co. has announced record positive figures, as have companies in its peer group. Seed and pesticide producer Monsanto as well as Cargill, the world’s top agricultural commodities trading company, have also benefited from the farming boom.
Perhaps the most dramatic gains can be seen in the soaring price of farmland in the Midwestern U.S. The value of land acreage has risen skyward, with year-on-year gains reaching above 25%. The U.S. Department of Agriculture (USDA) foresees another strong year ahead in 2012.
Rising demand from growing powerhouses China and India, combined with weather anomalies that destroyed crop harvests in key producing regions around the world, has resulted in rising agricultural commodity prices across the board.
Over the past thirty years, commodities have spiked at times, but typically the effect was usually limited to a single commodity. In contrast, this current commodity boom is affecting nearly every commodity, including wheat, corn, soybeans, coffee, sugar, etc. Such a phenomenon has not been seen since 1973-1974.
We believe investing in agriculture is one of the most significant opportunities of our time, and monitor developments in this sector closely.