Since I have a little interest in farming I do read these a little more closely than some items and I actually have been thinking as far back as last summer that I should have been getting into things like $POT and $MOS. If you don’t do actual commodities then look for fertilizer stocks. I can’t say which is best or which to look for but surely there is something to tickle your interest here. How long will it last? Can’t say. Do I recommend anything? NO – just food for thought – WD0AJG
Grains Over Gold. Yeah, I Said It.
“Investors are failing to recognize that both agricultural prices, such as wheat, and industrial soft prices, such as cotton and rubber, are moving in tandem.”
– Sean Darby, Nomura strategist
Farmer Brown here again. For investment purposes, Gold has been the undisputed commodity winner over the last ten years. GLD, the most popular gold ETF, is now sitting on assets under management of $53 billion, a number second only to the assets in the SPY (S&P 500 ETF). What are the odds of a repeat performance for gold prices and popularity over the next ten years?
chart of the food price index (based on IMF data) going back 10 years. It includes orange juice, cereal, vegetable oils, meat, sugar, seafood, bananas, etc:
I have absolutely no problem whatsoever hammering this ag story home, week after week, because it’s just so obvious. I don’t give tips or investment advice on the interwebs, but I do discuss themes that are worth paying attention to, and the global agriculture demand story is screaming right now.
But a lot of us aren’t listening.
I’ve covered the topic of how hungry the developing world is becoming for more poultry, beef and pork. I’ve called the ag story perhaps the “most monumental investing opportunity of our lifetime” (see here: The Beans or the Business?).
The important thing to remember here is that the animals the developing world now wants to consume in ever larger quantities need to consume food themselves. They eat corn, cereals, wheat and other feed grains and they eat quite a lot. The more animals there are being raised for human consumption, the more demand there is for feed crops, fertilizers, farming equipment, seeds and arable land.
And now we’re seeing the agricultural raw cost commodities like wool, hides, rubber, timber and cotton begin to break out to new ten year highs, see the below monthly chart going back to 2000:
Agricultural raw materials and food prices running together? You think maybe this might become important?
MarketWatch picked up on a recent report from investment bank Nomura in which the assertion is made that the big commodity gains of the next decade will come from the soft commodities, not the metals. I’m in the same camp and have been planning accordingly for a short time now. The recent ramp in the farm-y futures market has added some urgency to my work in this area.
“While investor eyes are focused on the gold price as it touches new highs, the acceleration in global food price is unrestrained. We continue to believe that soft commodities will outperform base and precious metals in the future.”
That’s your money quote right there. When we talk about the ag price spike, we’re not just fixating on aberrations like the Russian wheat field fires. What we’re saying is that the wheat field fires and subsequent Russian export ban on crops were your wake-up call. People are hungry around the world and the global population is Movin’ On Up like George and Weezie. The supply chain is getting tighter and over time, prices are pretty much heading in one direction – the pace of this march accelerating with the undeniable improvement of living standards taking hold throughout Africa, Asia, Latin America and the Middle East.
My core belief is that excess speculation from the hedge fund feedback loop in the soft commodities markets combined with a rapid increase in catastrophic weather incidents will mean continued price spikes and dislocations. Combine these two ideas and look at them against a backdrop of the developing world making a big leap forward economically and you have the recipe for a longer-term bull trend. This bull market, however, will not be about pushing paper or flipping digits on a computer screen; this one will feature the verisimilitude of actual hunger and human progress on a global scale.
The food riots of 2008 were just the shot over the bow, in my estimation. The recent bullish action in ag commodities may be the start of the actual melee.
Sources:
Food Price Inflation Buoys Asian Producers Outlook (MarketWatch)
Read Also:
Ag Plays: The Beans or the Business (TRB)