Wednesday, February 20, 2013

Which Crop is the Next to Pop?

Agriculture can be contradictory asset class, with investors often viewing the opportunities as both over-heated and under-invested. But throughout our research with investors and managers alike, all signs points to permanent crops as the next segment to pop. 

Many investors lump long-time favorite timber into the permanent crop category – and there are some relative newcomers like palm oil and perennial energy crops that are also getting attention. But more frequently, we’re hearing that the more niche permanent crops are the ones to watch. Investors love these “boutique” items, such as avocados, almonds and pistachios because they, often command higher prices resulting in higher margins. There’s even a shift within individual commodities – with the more profitable and easy-to-peel Clementine orange gaining traction over the more cumbersome Valencia version. And with last summer’s drought still fresh on the mind of many investors, permanent crops are often viewed as a more palatable investment amid environmental instability. 

Of course, there are risks. While permanent crops may be a better buy amid weather volatility, they are subject to market volatility and the whims of consumer demand. And while Asian countries are among the biggest purchasers of U.S. permanent crops, there’s some anxiety that China will become a hefty competitor in some categories in the not so distance future.

Currently row crops still dominate, accounting for roughly 70% of most Ag Investors portfolios but with permanent crops showing so much promise we expect allocations to increase.

How do permanent crops factor into your agriculture investment strategy? Tell us and get involved with the AgReturn conference series. Contact Conference Producer Diana Middleton, dmiddleton@iirusa.com, for more details.

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