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AGRICULTURE/SOFT COMMODITIES
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We are always seeking, and particularly at this stage of the investment cycle, assets and investment sectors which act as good portfolio diversifiers and behave diametrically opposite to equities in order to improve balance and reduce risk.
Soft commodities such as sugar, coffee, meat, soya beans and palm oil are almost totally non-correlated with equities, yet possess considerable upside.
This sector is just 9 months into a bull market after a 20 year bear market. Compare this with hard commodities (e.g. metals) and oil which are 4 years into their current cycle with many specialist funds having risen by 400-500% over this period.
Yet the same arguments in favour of a supercycle for metals and oil apply equally to soft commodities. The industrialisation of China and India is creating exponential demand not only for metals such as platinum for motor cars and zinc for civil engineering, but also the consumption of foodstuffs is rising dramatically as burgeoning middle classes emerge and
demand is escalating for alternative fuels such as ethanol which is derived from sugar and corn. As more agricultural land is diverted to the production of biofuels this reduces the available land for the production of other crops, which inevitably exerts upward pressure on prices. In addition, global warming is believed to be responsible for adverse weather patterns. Floods and droughts are disrupting harvests leading to poor agricultural yields across the world. All in all, the case for soft commodities is compelling.
We believe that if you have missed the hard commodities boat, soft commodities provide a second bite of the cherry with the additional advantage of great diversification qualities.
There are just one or two managers with specific expertise in this area - with any emerging theme, don't underestimate the significance of first mover advantage!
Please contact us if you require further information.
SHEPPARD DAVIES ASSET MANAGEMENT LTD
Agincourt House
Agincourt Square
Monmouth
NP25 3BT
Tel: 01600 711955
Fax: 01600 711956
Email: Contact us
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