The man who turns wheat into gold

Surging demand from China, a craze for biofuels and difficult weather conditions have made agricultural commodities one of the hottest investments of the past year.

Everything from wheat to soyabeans is at or near record highs with gains of up to 100%, but the question is, can the boom last?
One man who ought to know is Christopher Wyke, one of Schroders’ commodities team, the investment brains behind its Alternative Solutions Agricultural Commodities fund.

He gives his outlook for the sector.

As with tech, though, aren’t we seeing a bubble? Not at all. We are at the start of a super-cycle that will see commodity prices trend upwards for the next 15 years or longer.

Commodity cycles tend to last an average of 20 years. We are only in year six with oil, year four with metals and year two for agriculture.

Isn’t there a risk farmers will just plant more crops and flood the market? There is a growing shortage of arable land. In Asia, it is estimated that 75% of land that could be used for crops is already under cultivation. In India that rises to 95%.

China has actually lost 9% of its arable land in the past 10 years as more of its population move into towns and cities. Desertification is also a problem, as is a growing shortage of water.

It’s true farmers planted more corn in the US last year because of demand for biofuels. However, that was at the expense of crops such as wheat and cotton, which, as a result, have risen more sharply in price than corn.

It’s likely that this year farms will plant a lot more wheat because the price is so high, which will probably lead to wheat prices weakening.

The Times