Soft commodities such as soy and corn should be used by investors to protect against inflation in the same way as gold, according to the founding partner of GAIA Capital, John Coast Sullenger.
Soft commodities such as soy and corn should be used by investors to protect against inflationin the same way as gold , according to the founding partner of GAIA Capital, John Coast Sullenger.
Sullenger, whose company launched the first global farming index, the GAIA Farming Index, told CNBC that population growth and changing consumption habits are driving up prices of agricultural commodities.
“These trends are well established,” he told "Worldwide Exchange". “The FAO (Food Agriculture Organization) is saying we have to increase food production to meet demand by 50 percent by the year 2030, and by 80 percent by the year 2050. So that growth is there.”
He conceded that short-term trends in soft commodities were reliant on weather and warned against economically sensitive commodities like cotton , but added that investors should be “somewhat visionary” with their perspective and can gain exposure with physicals, futuresand stocks.
Tom Vosa, Head of Market Economics Europe at National Australia Bank, questioned whether prices would see such a long-term increase as Sullenger expected.
“I agree the FAO said by 2050 we need to double crop production. If you speak to the USDA (US Department of Agriculture) though, they reckon that most of that can be done if we only have 2 percent productivity growth per year, in essentially agricultural output. Now that means that the investment needed doesn’t necessarily need to generate this very high price,” Vosa said.
“What I worry about at the moment is that soft commodities are having a massive rally because you are looking for an inflation hedge and you believe everywhere central banks are essentially printing moneywhich will to lead inflation,” he added.
Sullenger responded that soft commodities were tangible assets that could still be considered a “contrarian play” but reiterated his point that, just like gold, they should be seen as an inflation hedge.
For another view on investing in agriculture, watch: Gartman: Corn Crops and Climate.