I started building an interest over this particular sector few months ago, after watching the great movie The Big Short – if you haven’t watched it yet I advice you to do so – I did my personal research on Michael Burry – portrayed by Christian Bale in the film- and his current investment approach.
At the very end of the movie we can read how “Michael Burry is focusing all of his trading on one commodity: Water.”
However such statement is not particulary accurate with M.D.Burry’s view on the matter:
Fundamentally, I started looking at investments in water about 15 years ago. Fresh, clean water cannot be taken for granted. And it is not — water is political, and litigious. Transporting water is impractical for both political and physical reasons, so buying up water rights did not make a lot of sense to me, unless I was pursuing a greater fool theory of investment — which was not my intention. What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable. A bottle of wine takes over 400 bottles of water to produce — the water embedded in food is what I found interesting.
Clearly both sectors are deeply connected and despite Water sector being extremely interesting itself I’ll leave it for a future post and focus on the Agribusiness sector now.
- Why do I find Agribusiness an interesting option?
It’s rather easy to understand that everyone can live without the fanciest car or the lastest sunglasses model however nobody can survive without food – thanks captain obvious sweet spot ah! –
While population growth in the so called western societies has stabilized – and in many cases it’s expected to be decreasing – the fact is that the net global population is growing and it’s expected to reach 9.8B from the 7.3B we stand at right now (2015). That’s 2.5B extra people that will have to be fed.
The higher the population grows on those developing countries the bigger the world demand for food will be, bigger volumes might lead to higher margins and revenues and in consequence the whole Agribusiness sector can profit from it.
Developing countries are also constituted by a really young population:
Taking Nigeria’s case as an example: In addition to being the 7th most populous country in the world and the most populous country in Africa with over 186 million people, approximately 62% of Nigeria’s population is under the age of 25 (US Census Bureau, 2016).
All this data can hint us that:
- The world population is going to increase
- In consequence there will be a higher global food demand
- Many of those potentially large, fast-growing markets backed up by young populations will be a major global growth & consumption factor in the future
Let’s take a look at the Agribusiness sector behaviour:
iShares Agribusiness ETF
Perhaps a good momentum to enter the Agribusiness sector could be building up right now due to the historical lows of the agricultural commodities which are tightening company margins.
- If the sector is so attractive why aren’t you already invested on it?
Well let’s keep in mind all those predictions are really long term ones, 2050, that’s 34 years onwards, and despite it being interesting enough my capital is limited and I would like to pick opportunities that I can capitalize in shorter periods of time.
However if the lows continue to deepen it could be a great chance to either cherry pick some solid stocks in the sector or index ourselves via ETF to it.