TORONTO, ONTARIO--(Marketwire - May 25, 2012) - Strong emerging-market demand, supply constraints and scope for further product development all represent compelling reasons for continued investment in agriculture-related industries, according to a new report from BMO Economics.
"While farmland values and agriculture-related equities have substantially outperformed - warranting some caution - fundamentals suggest that promising investment opportunities still exist through the agricultural value chain," said Robert Kavcic, Economist, BMO Capital Markets. "Additionally, agriculture provides relatively defensive exposure within the broader commodity sector and is a lower beta alternative for investors emotionally drained by the impact of changing global growth prospects on the more volatile energy and base metal sectors."
"Although the Canadian equity markets have lagged others recently, there appears to be considerable up-side for Canadian investors in the agricultural sector," said Paul Taylor, CIO, BMO Harris Private Banking and BMO Global Asset Management. Mr. Taylor pointed out that global trends such as solid population growth, strong per capita GDP growth in developing economies, loss in arable land per capita, urbanization and the emergence of alternative fuels are expected to push food demand much higher in the next few decades.
The report states that demand for food and other agricultural products is expected to expand at a robust pace, particularly in emerging markets, where brisk population and income growth is boosting consumption. For example, in China:
- Per-capita food consumption in China has topped 2,900 calories/day, above the global average
- Higher incomes have led to a shift to protein-rich diets; China's protein consumption has surged above the global average
- More meat consumption has an impact along the supply chain, including higher demand for feed stock
"Growing demand for food is coming up against increasingly scarce resources, particularly land and water, supporting a secular uptrend in the prices of key farm commodities, related equities and farmland," noted Mr. Kavcic. "After being stagnant for about 20 years, agricultural commodity prices have surged, with the S&P/GSCI Agricultural and Livestock Index at levels more than twice as high as a decade ago."
According to the report, there is also scope for new product development in the agri-food sphere:
- Costly non-renewable energy is fuelling a search for other sources; U.S. ethanol production has nearly tripled since 2006.
- Health care is shifting to disease prevention and the use of natural products such as nutraceuticals, including eggs with OMEGA-3 from flax, calcium-enriched fruit juice, and tomatoes with higher levels of lycopene.
The full report can be found in the weekly Focus publication at www.bmocm.com/economics.
BMO's roots in the Canadian agricultural sector date back to 1817, when it first began working with farmers. The second-largest Ag-Lending bank in Canada, BMO Bank of Montreal provides customized loan and deposit solutions to Canada's agri-business owners, the single largest core commercial sector that the bank serves.
BMO Harris Bank is one of the 10 largest Ag-Lending banks in the United States, and the largest in Wisconsin. BMO Harris Bank brings a tremendous amount of expertise in serving Ag customers; it added new customers this year, increased its overall customer base and plans on continuing to grow its business and serve Ag customers.
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $525 billion as at April 30, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.