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I wanted to send a question about investments. I can’t remember where I heard parts of this, CBC and other sources but I was wondering if there is some kind of investment in agriculture. I have been hearing/thinking the following:
- Water and food security worldwide seem to be getting worse.
- Global warming is likely not stoppable/reversible, especially in the short term.
- The Canadian growing season is getting longer.
- Canadians are very hesitant to sell / export water.
- We are not hesitant to export wheat, beef, and other crops which is essentially the same as exporting water.
- Food production in areas that were traditionally high producing (California, etc) is getting difficult because of extreme heat/drought. With our growing season extending we can grow different crops that we couldn’t before and with higher yields.
- Big investment groups are looking to Canadian agriculture –someone in the Middle East bought a large chunk of the wheat board?
- Food prices are going up quickly so there will be changes to how / what people eat. Consumers are either paying more or getting less for the same package but marketers only have so much ability to hide or gloss over that food is proportionally more expensive.
I’ll do more research but my impression is that Canada has fairly good water security and farmland that is going to have longer hotter growing seasons. It seems like it makes sense that there will be an increase in value of agricultural land / agriculture products. There is also likely going to be a shift in how people eat, though it will probably take a long time in Canada – less meat will become the norm and high-water-requirement crops will also become more expensive. I don’t think it will be an overnight thing, it would be more gradual over years.
This is just a thought, I have been seeing a lot of “reporting” on this over the years. I think people are hesitant to acknowledge that there could be a change. It’s very stressful to think that food / water are potentially at risk so most people avoid thinking about it. Thoughts? Are there investments that could take advantage of this? REITs or stocks in big food production companies or something else? Futures seem too short term/specific.
You have some interesting reasoning here and the potential future you see developing could indeed become a reality. But I have two thoughts for you:
1) Starting ten years ago or so a supposedly “expert” economist named Jeff Rubin started talking about a concept called peak oil and how a lack of oil was going to quickly change the way we lived. This man had access to almost any piece of relevant information you could think of as the Chief Economist over at CIBC – yet he was hugely wrong (even if he has yet to admit it). What we instead saw was a classic case of incentives at work. It became very profitable to figure out ways to get oil out of the ground, so what happened next? We figured out new ways to get oil out of the ground of course! Today we know that we won’t be seeing “peak oil” for several decades if ever. Check out the Freakonomics books/podcast and think about how incentives might play out in this scenario you’ve created above. I think it’s very hard to predict what direction consumption and supply patterns will take.
2) The trends you have predicted seem plausible, but admittedly you haven’t looked at much original research and tend to take generalities at face value (i.e. “Water and food security worldwide seem to be getting worse.” – are they?). Now, consider that there are absolutely massive investment companies out there with whole teams and/or departments that study agriculture around the world exclusively. They study consumption patterns of growing populations in depth, they know every major player in the agricultural arena, and they have essentially made their entire lives about predicting what agricultural production will look like next year, in five years, and beyond. Knowing that these investment arms exist and that they have access to billions of dollars in capital, do you still think you can outsmart the market?
I ask if you think you can outsmart the market because that is essentially the bet you’re placing here Evan. A common mistake investors make is that they believe they are outsmarting other small retail investors like themselves by seeing long-term trends or short-term inefficiencies that no one else sees. In reality, what you are saying is that you have identified a major factor that most people at massive companies designed to find these inefficiencies have not noticed. A term financial talking heads like to use to describe this reality is “baked into the market”. If we apply these thoughts to your ideas, the question is has much of the investing world looked at the same trends you have, identified the likelihood of the various scenarios you propose, and determined the best allocation of their capital on that basis already? My answer would be that they have, and have likely done so in a much more efficient way than you or I ever could due to their massive advantage in tools, manpower, expertise, and insider knowledge.
If you agree with line of thought and the idea that these major trends are already “baked into the market” to a large degree, then the logical conclusion is that you stand a very small chance of beating the market, and that even if the events you have predicted will happen come to fruition (a risky bet), others have likely already priced those events into their current stock portfolios. At that point, we arrive full circle back to the broad market ETFs we describe and recommend in our free ETF ebook. The good news for you as a Canadian resident is that if events occur as you predict they will, the home country part of your portfolio (Canadian TSX ETF most likely) will do very well and you will benefit anyway.
To directly answer a couple of your other questions, there are funds out there that allow you to invest in agriculture products, but I would not recommend them at all for small retail investors. Certainly stay away from any sort of commodity futures unless you want to make those markets your full time job!!! Commodity markets are very volatile and notoriously difficult to predict. If you are still bound and determined to try and outperform the broader market I would do a substantial amount of reading about picking stocks in general, and then substantially more reading on the agricultural world specifically. Maybe at that point you will be able to identify some good long-term value plays versus their current stock valuation. Even after doing all of that work though, I don’t any single retail investor’s chances to be brutally honest.
Hopefully this helps and wasn’t too much of a downer!