Institutions recognize the value of portfolio diversification and have long invested in farmland and agriculture-related private equity. In one example, the University of Illinois Foundation has shifted 10% of its endowment into agriculture. Individual investors wishing to diveOptionsrsify their portfolios with natural resources this year are faced with a variety of alternatives. Here are some ideas:
Among commodity crops, cotton was king in 2017, with an 11 percent price gain as demand grew for U.S. exports. At the end of the year, cotton achieved 10 straight weekly gains, its longest winning streak since 1998. Many hedge fund managers loaded up on cotton futures.
Anyone who follows commodity prices closely is probably skeptical of this one, but we believe corn producers could have a great year in 2018. Last year, the Iowa Renewable Fuels Association reported that the state's 43 ethanol plants turned out a record 4.2 billion gallons of ethanol. With oil prices starting to creep back above $60 a barrel, and a higher demand for E15 (a gasoline blend made with 15% ethanol) from many drivers, corn could make a comeback.
With higher commodity prices, come higher feed prices, driving up livestock costs. Protein consumption continues to grow in the U.S. and world-wide, and the USDA predicts that pork production could meet or exceed that of beef this year. "Naturally-raised" hogs can bring an especially premium price compared to "factory-raised" livestock. Maybe it's time to put a little pork in your portfolio.
An alternative protein, the demand for organically-raised eggs continues to outstrip supply. The USDA expects demand for eggs to reach an all-time high in 2018. Egg producers generally receive long term contracts from wholesalers on their products.
On January 1st, recreational use of marijuana became legal in the state of California, the eighth state to legalize the drug. Massachusetts will likely become the ninth this summer. Currently, 29 other states and the District of Columbia allow medicinal marijuana. There are many ways to play the sector, but professionals we talk to say to avoid direct investments in the growers and go with the "pick and shovel" guys. Like the opportunists who benefited the gold rush of yore, these companies will make money no matter if the price of the weed goes up or down. One recommendation we've seen frequently is to by stock in Scotts Miracle-Gro.
Consumer demand for anything and everything organic continues to rise. Consider private investments in hydroponic or aquaponic operations that grow fresh food closer to markets.
As always, do your due diligence and invest with caution.