Outlook 2019: Ag and the cycle

In their end-of-year outlooks, financial strategists balanced recognition that economic conditions look set to become more challenging in 2019 with desire to leave room for a reasonable amount of optimism that opportunities remain. Goldman Sachs, for example, employed the image of a plane continuing towards a gradual landing, while Nuveen’s 2019 Outlook spoke explicitly of a need to prepare for a more defensive environment without undertaking a “major rotation into value or other sectors” or becoming “too defensive.”

A similar mixture of anxiety and optimism was on display at November’s Agri Investor Forum in Chicago. Agriculture’s central role in 2018’s trade dispute between China and the US only further complicated a downturn in the sector that began years before and as GPs compared notes in Chicago, some seemed keen to discuss degrees of market distress, while others focused more on positive signs of LP demand making their way through the gloom surrounding ag.

In his keynote address to the conference, Nuveen’s Justin Ourso reported that, as opposed to even just a few years ago, discussions with investors have now moved past having to justify the existence of farmland as an asset class and progressed towards a need to demonstrate what differentiates strategy in an increasingly populated market.

The year ahead appears likely to see economic conditions and market sentiment move further in a direction that will provide an opportunity to test Ourso’s thesis.

If LPs and their consultants have, in fact, been convinced that farmland’s inflation protection, diversification and steady income streams make it an important part of a diversified portfolio, 2019’s concerns about slowing growth in China, continued political dysfunction the US and potential geopolitical conflagrations could translate into increased pace of commitments.

It was in the aftermath of the last economic crisis that conditions conspired to produce commodity price spikes that helped entice investors into the global agriculture market. The decade since has seen them carve an important role for themselves within a sector that stands to become more competitive in an environment where focus has shifted to gathering real assets to help meet long-term challenges.

As investors sift through reams of projections attempting to gauge the timing of the next downturn and begin to plot their strategies accordingly, 2019 will likely bring agricultural managers opportunities to make their case they can help weather it.