Commodity prices have been rising along with farmland values in Canada, according to a Farm Credit Canada blog post. It’s a sign of the times, which offers investors an opportunity to get exposure to commodities via exchange traded funds (ETFs).
The rise in farmland was apparent last year amid rising inflation and interest rates. A global food shortage, spurred further by Russia’s invasion of Ukraine, pushed agricultural commodities to the brink price-wise.
“The agriculture industry hasn’t been shielded from inflation as farm input prices climbed along with commodity prices,” a Farm Credit Canada blog post noted. “The resulting increase in farm cash receipts and limited supply of farmland available for sale led to increases in farmland values. FCC reports an average increase of 12.8% in cultivated land values for 2022.”
In the current economic state, real estate prices have been taking a hit thanks to rising interest rates. That’s not the case for farmland, as revenue generation has been strong amid rising consumer prices.
“Challenging economic conditions could have been expected to slow the demand for farmland and the resulting price buyers paid for land in 2022,” said J.P. Gervais, FCC’s chief economist. “But the underlying fundamental factors in the farmland market tell another story.”
“Higher farm revenues are driving the demand for farmland, but higher borrowing costs and increased input prices are expected to lead to declines in the number of sales in 2023,” according to Gervais.
Get Active Exposure to Commodities
For exposure to agricultural commodities as well as other commodities, consider a solution that incorporates an active management strategy. One prime option is the (NBCM ).
Given the current macroeconomic environment, NBCM is an ideal option for investors looking to add commodities as an inflation hedge, especially with high prices sticking around for some time. With its active management style, NBCM puts the portfolio holdings in the hands of seasoned portfolio managers, which will allow for changes to holdings when market conditions warrant necessary adjustments.
Getting active management adds a layer of flexibility to an investor’s portfolio, especially with the capital markets responding to central bank interest rate policy. Commodities, in particular, can be volatile, making an active management strategy ideal.
The fund invests in commodity-linked derivatives with an active risk-balanced, diversified approach that seeks to minimize the effects of market volatility — something privy to the commodities market. Tactical exposure adjustments expand potential alpha sources by considering top-down macro variables among commodity sectors and individual commodity outlooks to take advantage of short- and long-term opportunities.
NBCM comes with a 0.65% net expense ratio (0.79% gross), and the fund currently (as of March 16) has 28 commodity holdings for diversified exposure — over 25% is allocated to the agricultural sector. The current top allocation goes to gold, with corn, Brent crude, WTI crude, and gasoline rounding out the top five holdings.
For more news, information, and analysis, visit the Commodities Channel.