Mainstream discussions of commodity prices tend to be dominated by energy and metals markets which have been under severe pressure in 2015. Amid all the negative commentary it might surprise you to learn there is a commodity which has actually appreciated in value year-to-date.

Cocoa - the crop from which chocolate is derived - is up around 6% so far in 2015 thanks to a combination of increasing global demand and a disappointing crop from the world’s second largest producer Ghana.

What you also may not realise is that there is a direct way of playing cocoa on the AIM market. Peru-based United Cacao (CHOC:AIM), which grows the cacao trees which yield cocoa beans, is up nearly 30% in the past six months as investors have become increasingly sweet on the stock.

Surplus softs

Big surpluses in some crop markets have pressured prices over the last three years but Baring Asset Management believes we are at an inflexion point. The manager of Baring Global Agriculture (GB00B3B9V927), James Govan, says: ‘Abundant grain supplies have weighed on prices, pressuring farmers’ profitability. While it seems that farmers in the US have only trimmed back slightly on fertiliser, seeds and crop chemicals in the US, our research indicates that farmers are becoming more cost conscious, particularly in purchases of big-ticket items like high horsepower tractors and combine harvesters.

‘The price for grains and edible oils are at depressed levels compared to recent years and we believe prices could see a cyclical bottom in the coming months. In our view, flexibility and a wide opportunity set are key for investment outperformance under these circumstances. As we look at companies that are leading the way through innovation, improving financial metrics and strong growth ambitions, we remain positive about the future prospects for the asset class.’

Diversification appeal

‘Soft’ commodities - i.e. ones which can be grown unlike ‘hard’ commodities which are extracted by mining or drilling - are an interesting alternative for investors and the availability of exchange-traded fund and exchange-traded commodity vehicles which track these markets mean anyone can get involved.

It is also possible to buy stocks with an agricultural bent. They run from the likes of US-listed tractor and farm equipment giant Deere & Company (DE:NYSE), to Carlisle headquartered animal feed specialist Carr’s (CARR) - which reported record interim profits of £10.6 million in April 2015, to plantation stocks which actually grow agricultural produce (mainly palm oil) such as R.E.A. Holdings (RE.), Anglo-Eastern Plantations (AEP) and the aforementioned United Cacao. Even Associated British Foods (ABF) - better known for its discount clothing chain Primark - has exposure to sugar prices through its AB Sugar business.

Defensive qualities

Gold is a traditional ‘safe haven’ asset though anyone favouring a conservative investment approach could also consider gaining exposure to agriculture. Demand for food is relatively inelastic. Most consumers are likely to prioritise having enough to eat over spending on luxuries such as cars, expensive clothes and holidays. And there are a growing numbers of mouths to feed - the latest projection from the United Nations has the global population increasing from the current 7.35 billion to 9.72 billion by 2050.

Although increasing productivity will help address this challenge, the available land on which crops can be grown is finite and is shrinking as the world becomes increasingly urbanised. There are also pressures on the water needed to help these crops grow. According to the Food and Agriculture Organisation of the UN the world’s arable land covers an area of around 41.4 million square kilometres out of a total global land mass of 148.9 million square kilometres. Every year more of this precious land is lost to urban sprawl, erosion from industrial activities and desertification.

These markets are still volatile despite having some defensive qualities. This at least means they have plenty to offer for those seeking trading opportunities. The plethora of soft commodity exchange-traded products - known as ETCs for this underlying asset class - offered by ETF Securities are probably better suited to those with a short-term horizon anyway due to the way the vagaries of futures markets can impact returns from these products over time.

Weather and the planting decisions of farmers are arguably a more important factor in the movements of soft commodities then the global macro-economic conditions which influence the price of energy and metals.

For this reason investors in soft commodities need to acquaint themselves with weather effects such as El Niño and La Niña (see above). And in markets where production is concentrated in handful of countries - like cocoa - political instability or conflict can also have an impact.