Defining the Risk in Agricultural Commodities

Saturday, 21 August 2010

Many investors shy away from agricultural investments because of the misconception that agriculture is a risky venture. However, whether the venture is risky or not really does not lie in the sector, but more on the investor himself. Agricultural investments have its defined risk and benefits. It will indeed be very risky if one were to invest in low quality land. However, the case if very different if we were talking about prime investment grade farmland which provides stable and consistent returns while appreciating the principle.

Investors who do not have a foot in the agricultural commodity market is sorely missing out. I would guess that almost 90% of those reading this has absolutely no idea how the agricultural commodities can benefit them. This is not your fault entirely as most stock brokers and hedge fund managers are always calling for more buys into properties and bonds. Investors often call the agricultural commodity 'risky', but these are the very same folks who buy heavily into funds where they watch their shares go to zero. No commodity has ever gone to zero, and they never will.

Agriculture is the staple of almost every country's economy. By being able to provide the basic necessarily of life - food, agriculture commodity creates a tremendous economic impact. It cannot be denied that the food and farming industry is critical to the balance of trade and employment in every nation. All across the country, it is agricultural farmland that supports the economic base of nation. Let us not forget the impact that China will have on the worlds agricultural economy. The United States has a population of about 280 million, and about 330 million crop acres in production. In similar comparison, China has 1.4 billion people living off 270 million crops acres! The economic boom in China is imminent and just starting.

In recent years, the land and agricultural business has not received the best of press. There are a few selected companies out there which are measured as trustworthy, and all it takes is determination on your part to seek out these companies and to learn about investing in the agricultural commodity. Investing in agriculture can be very lucrative to the informed investor. Therefore, it is highly advisable that you seek and follow the latest news on very exciting sector.

Welcome to the Future of Robotic Farming

Eli Whitney built the first cotton gin, and that revolutionized cotton farming, it changed everything, forever in that sector. Today the business of agriculture is going very high-tech, very fast. More mechanized equipment, robotic systems, and high-tech tools.

The massive productivity increases and crop yields is completely astounding, unfortunately, this also causes a problem for people, workers who make their money on farms and picking crops - they just will not be needed in the future.

This means they may not be able to feed their own families. Indeed, I can look back at my family tree and before the 1940s my ancestral charts show ten kids in nearly every family. Why? Simple they were farmers and needed the labor, may as well "keep it in the family" so to speak.

Today Dairy Farms have 25 to 35 head of cattle per employee, the cows rest on water bed mattresses, and robotic stainless steel equipment hooked up to a computer milks the cows. Higher milk yield, happier cows, less infection, sounds like a good life to me, and that my friends is the future of the agriculture business in a nutshell.

The modern day combine is over half-a-million dollars, runs on GPS coordinates, and looks more like the space shuttle inside than anything close to a 1940s tractor. In fact, once you put the combine in position, just hit go, like you would in a 747 cleared for take-off and it will fly the whole trip and land in zero-zero visibility at the designated airport.

So too, will a modern day combine, it can do the entire job in dense fog and tell you when it's done, while you are merely along for the ride "just in case" as you sit in complete comfort with surround a sound music, air-conditioning and you can even watch the game. Yah, farming is hard work? Not anymore, never again will it be.

And just as the Unmanned Aerial Vehicle (UAV) works on telerobotics, they have high-tech farm equipment that can do the same. Instead of a flying UAV, it's an unmanned agricultural vehicle (UAV), the military version would be an unmanned ground vehicle or UGV, but rest assured this technology is coming to a field near you soon.

Interestingly enough, these high-tech pieces of equipment are also getting harder and harder to maintain, meaning Farmer Joe in the future might have a computer degree from MIT. Please consider all this.

The Business of Agriculture

No Till Farming Makes a Lot of Sense Most of the Time

Water is a necessity when it comes to agriculture. Just ask anyone who is along the Mekong River as it leaves China, the water doesn't flow most of the year any more, not at all, no water. Why? Well, drought issues, plus, China has put in tons of hydro-electric dams on the upper river. It's a major issue, not only for those who live along the river to fish, and need water to irrigate, but to drink also. Now they must dig wells, which is fine for a while.

This just underscores the future of agriculture around the world. And just because we live in abundance in the US doesn't mean we are not without risk. In fact, the Ogallala Aquifer is challenged due to the discharges for farming and city water to the point that eventually it could someday run dry. In some areas it already has, for instance along the WY - Nebraska borders.

What's the solution? Some believe that no-till farming is the solution or at least one of the solutions. Using these methods can more than half the water usage, sometimes up to 75% or more. No it's not the total answer, but it is definitely part of the solution. Not long ago, I was discussing this with an acquaintance and he asked if I'd heard of "No Till Farming," indeed, I had.

"Yes, I have watched Discovery Channel Specials on No-Till farming in the US, Africa, India, Australia, and South East Asia were ground water scarcity has reached super-drought levels, although it makes sense all the time in many places." One of the Newsletters I take is "TX H20" and involved the Baylor College and other universities working on these studies, really cutting edge stuff for West Texas, KS, Western Nebraska, South Eastern WY, Oklahoma (remember the dust bowl), etc.

They've had great success drastically cutting the water needs, maintaining soil moisture, you are right, it works! If you have a home garden, that is smart thinking to do this in your garden too. My acquaintance also mentioned the issues with soil compaction, which is another important point.

In the future, we are going to have to do more and maintain increasing crop yields, and we are going to have to attain this lofty goal using less water too. That means planting specially genetically modified crops which use less water and the altering of the way we farm. In fact, I hope you will look into this and get yourself educated on this important issue.