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Soft Commodity Investment from Ukraine Land

Fears of high inflation in the US have led to the longest rally on wheat prices since early August. Interest in soft commodity investment has been so high that some analysts have reported "a party in the grains market". Rising grain prices guarantee high returns from investment in agricultural land.

Worries about high inflation in the US are escalating as the value of the dollar falls and government spending rises. And soft commodity investment is a popular way of hedging against inflation. As a result, investment in soft commodities such as grain, gold and oil has increased markedly. Gold prices have reached record levels while wheat futures are climbing steadily. In just one day last week, the price of a bushel of wheat rose by 4% on the Chicago Board of Trade.

Although the October ‘World Agricultural Supply and Demand Estimates' from the US Department of Agriculture reports that global wheat supplies are 2.2 million tonnes higher for the 2009/10 marketing year, the monthly bulletin also cautions that global consumption is up 2.1 million tonnes. The small difference between supply and demand may well continue to push grain prices higher, good news for those who have made investment in agricultural land.

Ukraine is a principal exporter of grain and as such, a major player on the world soft commodity market. According to figures released last week by the Ukraine Agriculture Ministry, year-on-year grain exports have increased by 3.2% this marketing year (July 2009 to June 2010). So far, Ukraine has exported 3.95 million tonnes to wheat (compared with 3.37 million tonnes at this stage last year), almost 500,000 tonnes of corn (430,000 tonnes last year) and 2.55 million tonnes of barley (3 million last year).

Speaking at a press conference, Ukraine President, Viktor Yushchenko, reported that foreign investment in Ukraine has increased five-fold over the last four years. In 2005, foreign investment amounted to just US$7.6 billion in Ukraine. Just four years later, the figure now stands at US$38 billion, an increase of 500%.

A considerable proportion of this investment has been made in Ukraine agricultural land, currently a popular vehicle for soft commodity investment. The low prices of Ukraine land together with its highly-fertile soil make for rich returns, particularly in a global market where supply is currently barely able to keep up with demand. The supply-demand equation is expected to be reversed in the very near future when the world's grain requirements will far exceed supply. Already a key exporter, Ukraine land is forecast to play an even bigger part in the grain supply chain over the next ten years.

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