The current environment of elevated prices for soft commodities offers some very attractive investment opportunities within the agricultural asset class for 2011, Jonathan Blake, manager of the Baring Global Agriculture Fund has claimed.

“Bad weather has continued to disrupt the supply of grain and soft commodities, pushing prices higher. Corn, wheat and soybean prices rallied sharply over the last three months of 2010 as La Niña related weather events in Australia and Argentina reduced yield expectations in North America. Furthermore, ongoing export restraints in Eastern Europe significantly tightened up the grain and oilseed market fundamentals,” Blake explained.

“The strength in grain markets has led to a significant improvement in farmer profitability and will act as an incentive to maximise yield, which should result in strong investment into fertilisers, agricultural machinery, grain handling and processing services.”

Barings believes fertiliser prices, particularly nitrogen and phosphate based fertilisers, have already begun to reflect this rise in demand as farmers and distributors have been restocking ahead of the northern hemisphere planting season. Given the desire both to maximise yield as well as to affect a recovery in production in those countries significantly impacted by weather events, the firm anticipates that demand for fertilisers, herbicides and seeds will remain robust in the coming year and as capacity utilisation increases, this will lead to greater pricing power by producers.

Blake said: “The agricultural machinery sector is also benefitting from both improved farming economics and improving credit market conditions as machinery orders in Latin America and North America showed a strong uptick in 2010. We believe that Europe and ongoing support from emerging markets will continue to drive volume recovery through the course of this year.

“The long-term outlook for agriculture is very positive, underpinned by key drivers of demand such as a rising global population, higher protein consumption in emerging markets, especially Asia, and increasing biofuel usage.”

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