Remember when you couldn’t get anyone outside of farming to invest in agriculture?
The prairie farming sector seemed a dreary space 19 years ago when I started working for this newspaper, with few looking to put their investment cash into developing new uses and processes for crops and meats.
Sure, there were small clusters of ag biotech companies at places like the University of Saskatchewan, but apart from those cowboys, ag seemed like a loser sector.
Back in 1994, farmers seemed like economic losers and farming seemed like one long story of woe and struggle, failure and despair.
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Repeated challenges seemed to threaten the viability of even the best farmers in an environment of low commodity prices.
Remember the “farm income crisis?” I certainly do.
And I remember going to all sorts of conferences on finding “new uses,” “value-added opportunities” and “nutraceuticals,” which no one with any real money to invest actually attended. There were just a bunch of smart farmers trying to find some way to squeeze a margin out of producing crops and livestock.
Flash forward 19 years, look through my eyes and you will see a stunningly different vista: a conference hall filled with well-heeled representatives of private equity and venture capital firms spending two days talking about the golden opportunities and wonderful future of agriculture-based investments.
Leading New York-based, agriculture-focused private equity fund leader Benjamin Fishman noted the difference of just the last few years.
“You can see the attendees (at ag investment conferences) grow from 50 to 150 to 450, just in a few years.”
Fishman said he thinks the present boom in ag-related investment is a “secular” versus a “cyclical” development, with profitable agricultural, biotechnological and food-related development being on an “upward trajectory.”
However, Fishman also warned amateurs in agriculture against cavalier attitudes about the risks.
“A lot of outsiders … have this misperception that agriculture is just on an uninterrupted path north, and that’s simply not the case.”
As every farmer knows, farming is a volatile profession, with gigantic swings between profits and losses that are mostly impossible to predict.
Lots of investors who don’t live in the ag arena don’t know that, but they’d better learn it if they’re going to wander into it.
It was nice for me, after almost two decades of covering this industry, to hear such general bullishness about its future, even if it will be accompanied by the volatility to which we’re all accustomed.
But it did make me, a permanent skeptic and contrarian, wonder if all this interest by non-ag investors isn’t in fact a cyclical rather than a secular phenomenon and a manifestation of the late stages of a bull market.
This bull market has gone on so long that even people who know nothing about ag and farming are getting interested, so perhaps this rally is almost done. Even the suckers are getting drawn in.
That’s certainly the feeling I have from studying past commodity rallies, and it was the sentiment of the Cereals North America conference held a couple of weeks ago.
Of course, the moneymen are investing in something other than direct farming, so there’s no necessary direct connection between the base price of agricultural commodities and the value of ag-based innovations such as new food and industrial products. Cheaper crops and meat could make those even more profitable.
And no doubt science will not stop finding brilliant new ways to exploit the inherent potential of many things that farmers produce.
However, just as those sparsely attended conferences I covered 19 years ago were not a true representation of the future value of farming and agriculture, perhaps today’s widespread interest by outsiders in the apparently golden opportunities is similarly misrepresentative.
Fishman is probably right about farming and food production having a good future.
However, he was also right about volatility being a feature of the industry. Anyone who invests in agriculture, either as a farmer or a venture capitalist, needs to understand its cyclicality and its volatility.
Even in this golden age of optimism, those twin devils of risk crouch just as menacingly as they did in 1994, when no one but farmers were exposed to them.
