Opportunities abound in global agriculture equities, says Barings

Extreme weather events in 2012 led to sharp price rises in food commodities such as corn, wheat and soybeans and these prices look set to remain elevated for the next six months, according to Baring Asset Management (Barings), the international investment firm.  This has enhanced the investment appeal of those companies providing goods and services such as seeds, herbicides and fertilisers to farmers, which will enable them to maximise their crop output in this high price environment.
 
Jonathan Blake, Manager of the Baring Global Agriculture Fund, says: "It will take time to address the shortfalls in crop output caused by the severe weather events of 2012, from droughts in America to washout conditions in the UK and Europe.  We do, however, expect to see crop prices come down during the latter half of 2013, providing we have a year of ‘normal' weather, as significantly improved output will allow inventory levels to begin to be rebuilt.
 
"Consequently, the Fund currently has sizeable exposure to listed fertiliser, herbicide and seed producers.  Crop production, through the continuous cycle of planting, growing and harvesting robs the soil of nutrients. As a result, these nutrients need replenishing through the application of fertilisers. Additionally, for many farmers these nutrients are highly affordable given the current high prices farmers are able to get for their crops."
 
Barings are also positive on seafood companies such as salmon farmers. In addition to relatively muted growth in salmon supply this year, Barings expect salmon farmers to continue to benefit from growing affluence in emerging nations. The broadening and deepening of wealth is a significant contributor to changing dietary habits, including a greater consumption of protein.  Indeed, Russia is a big export destination for salmon farmers as consumer wealth increases.  Furthermore, salmon continues to be a significant part of peoples' diets in developed markets.
 
Timber is another area favoured by the Fund.  Shipments of spruce, pine and fir from Canada to China have increased fifteen-fold since 2007 and with China's move towards increasing levels of urbanisation, as well as increasing levels of domestic consumption, demand looks set to remain buoyant to support construction. Within the US, the ongoing recovery in the US housing market will also further underpin demand for timber, in our view.
 
Looking further into 2013, Barings will likely increasingly seek opportunities within logistics and grain handling activities as the higher anticipated farming output will need to be moved through the logistics chain to end users and markets, providing improved financial conditions for companies involved in providing those services.
 
Jonathan Blake concludes: "Overall, we remain positive on the agricultural equities asset class for 2013 as farmers are incentivised to maximise production by optimising the usage of fertiliser and crop protection and using the best seeds. Our expectation of a recovery in volumes and lower soft commodity prices through the second half of 2013 would be positive for processing and distribution companies and provide lower cost inputs for the meat, fish and dairy sectors. As active managers, we are always looking to position the Fund in industries and areas where we see the best investment return opportunities. Consequently, over the next 12 to 18 months, it is possible that our sector weightings and geographical weightings will shift significantly."
 
As at 1 January 2013 the Fund was predominantly allocated to fertilisers (28%); machinery (16%) and seeds & crop protection (16%).