Food prices have climbed : Can your portfolio benefit?
Food, one of the world’s most basic commodities, has become a hot investment trend. While a strong dollar has helped keep Canadian food costs in check, world food prices have risen by 80% over the past three years, according to the World Bank. This has led to some significant gains in the share prices of some food and agriculture stocks. Should we expect more gains ahead?
Although food prices may moderate in the near term, several underlying trends are coming together to suggest that high prices may be a fact of life in the coming years.
The most prominent of these is the rising demand for meat and dairy in China, India, and other developing countries. Greater affluence in these countries is contributing to changing diets, which is driving up prices and also raising the cost of inputs such as animal feed and fertilizer. High oil prices have also made producing and transporting food more expensive.
The boom in biofuels has also contributed. Driven by government subsidies, ethanol production is leading to much higher prices for corn. Droughts in Australia and Africa have devastated crops, putting pressure on food supplies. The involvement of large investment funds in world food markets has also driven up prices. For investors, these factors point to continued strength in companies that produce food, farm equipment, fertilizer, pesticides, and other inputs. Railroads that move many of these products may also see some benefits.
Let’s discuss the role that agricultural stocks can play in your portfolio, in light of your goals and risk tolerance.