Agricultural Finance: From Crops to Land, Water and Infrastructure

Chapter 14Investing in Agricultural Commodities, Land, and Physical Assets

‘Stock brokers will become taxi drivers. Farmers will be driving Lamborghinis.’

Jim Rogers, Commodities Investor

During and after the global financial crisis, commodities moved in lock-step with equities and bonds as the financial markets were in the mode of ‘risk-on, risk-off’ trading.

For investors, commodities are a diff icult asset class, however, as they pay neither coupons nor dividends.

Retail and institutional commodity assets under management had fallen from $525 billion in April 2011 to about $350 billion three years later. In 2013 alone, there was a record $50 billion of net redemptions in passive index tracking and commodity ETFs. During the first four months of 2014, the Dow Jones-UBS commodity index outperformed the S&P500 by more than 8% and the 90-day rolling correlation between the two indexes has been consistently negative. During that time period, the inflows into commodities amounted to $6 billion, with declining correlations to other asset classes and significant volatility in coffee, cocoa, and nickel, in all cases because of weather or political events. Overall, commodity indexes have been a less popular investment vehicle as of 2013 and are again now the space of natural players such as mining companies and commodity trading houses, but with large investments from equity funds into physical assets.

14.1 Purchase of Commodity Futures

Traditionally, commodities have been viewed ...