ETFS Agriculture (AIGA)
02/04/2008
Feeding the hungry planet As the cost of our weekly shopping creeps up, the price of the many soft commodities ('softs') are sitting on, or very close to, record levels. A growing global population and alternative energy initiatives fuel demand, while supply crippling weather conditions hinder production. In our view, ETFS Agriculture (LSE, AIGA) provides diverse exposure in seven key areas (including soybeans, wheat and corn) sufficient to manage risk whilst riding the agricultural commodities bull. At the same time as providing broad, risk dampening access across the spectrum of soft commodities, it is important to note that AIGA is traded on the LSE in the same way an ordinary share and can be included in ISA's, SIPP's and PEP's. The principal force behind the soft commodities freight train is the growth of the world population. It's getting crowded and, alarmingly, it took only 12 years to increase from 5 to 6 billion through the late 80's and 1990's. By 2050, it is anticipated there will be 9 billion mouths to feed on the globe. No matter the economic climate, the population has to eat. However, it is not only food consumption which is underpinning demand. Alternative energy industry is playing its part. With the United States keen to reduce their dependence on oil there is much weight in place behind plans in place to increase the use of 'biofuels', which in the US means turning corn into fuel. This wouldn't be necessarily a bad thing in an environment of increasing levels of production. However, this not the case. Far from it. And we believe supply side constraints will be highly supportive of higher prices in the long run. With US stocks of wheat are now at their lowest level in 60 years, this shortage is a global phenomenon and there are many reasons why. The weather is a key dynamic. While the snow over the Easter weekend may have forced us into jackets and from the golf course, spare a thought for the farming community in China. Last month crops were devastated as the country was hit by the worst snowstorm in over 50 years. In addition, global water shortages continue to prove restrictive. Food production is highly water intensive. According to the UN, agriculture is the number one consumer of freshwater. The industry uses nearly 70 percent of all freshwater taken from lakes and rivers. The decline of output over the long term is clear in our view. High petroleum prices as well as underinvestment in agriculture technology add to inefficiencies of production. As the level of housing and business development increase, it is farmlands that are making way. .
All factors considered, the current climate of constrained supply in the face of insatiable demand looks set to continue and we believe the price of agricultural commodities will increase over the coming years. 
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