Advances in the field
Rising global temperatures make feeding the world more difficult, highlighting the significance of the fight against climate change.
13 June 2017
Agricultural cycles are in many ways like a traditional capital cycle – swinging between overinvested (resulting in surplus) to underinvested (resulting in deficit). But there is the added complexity of an unknown variable: the weather.
Bad rains or drought can affect production during deficits. Good weather can help production during periods of surplus. Both exacerbate supply and demand dynamics, making for more extreme pricing relative to other commodities.
The impact of climate change on regional weather patterns could further stress agricultural cycles. Extreme heat or wet weather could make already-volatile markets even more so. In our view, swathes of traditional agriculturally productive land risk becoming less productive (see chart below) or being lost entirely. As temperatures rise, required yields increase from remaining farmed lands to avoid excessive food price inflation.
Studies suggest that key farming regions and major crops will see yield declines with global warming. For example, the US (which represents c.40% of global corn production) has been estimated to see a 7% yield loss with each degree Celsius of local warming, without effective adaptation strategies.
The needed increase in yield will likely be facilitated by greater application of yield improving technologies. This includes crop science and fertilizers, but also improved irrigation and machinery. These requirements will often be region and crop-specific, alleviating for example, the issues of water in India or nutrient content in soils in the US “corn belt”.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.