Agriculture Investments – A Warning to Investors

As stock portfolios continue to display volatility, many investors are now starting investigate alternative investments, with one area of particular interest being farm land near bangalore investments, or specifically farmland investments.

I think it is now particularly relevant to talk bring up that oft-used and rarely heeded piece of investment advice; “Past performance is no guarantee of future performance and investors should of course be cautious in the use of historical data when making investment decisions.”

Now the reasons for investing in real assets that produce essential commodities in perpetuity are sound. Population growth and rising incomes drive demand, whilst urbanisation, water scarcity, climate change and a host of other factors suppress supply, and these two fundamental trends converge to drive up food prices and with them, farm revenues and the capital value of farmland assets.

These, in my opinion, are the reasons to invest in agriculture, and although history and hindsight can demonstrate how these assets and markets have performed during certain conditions, the wise investor should perhaps look to the future, rather than the past to ascertain the likely performance of their holdings.

As witnessed recently in equity markets across the globe, the time frame used to provide data for predicting future events, is crucial. Rather than simply use the longest data set available, one is better positioned perhaps to use data from periods in time where economic conditions are most likely to be characteristic of future conditions.

A good example that has relevance to agriculture investments is the depression of commodity prices during the 1980’s, where a reduction in demand for food from developing countries resulted in the accumulation of large grain stocks. If you feel that in the future, demand from developing nations is likely to fall, then data from this period would be most relevant to use to project future commodity prices as you believe the same set of conditions will prevail. In this set of circumstance and taking this set of data, you would project that commodity prices and farmland prices would fall.

If you believe that demand for commodities such as food will continue to grow, as it did in the 1970’s, then you would expect commodity prices and farmland prices to rise as they did then, based on the assumption that the same set of circumstances in terms of supply and demand will ultimately prevail. Using this piece of historical data alone would lead you to believe that agriculture is a strong buy, and farmland investment assets will continue to rise in value.

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