The Real Crisis Is Food: Beginning of the Bull for Agriculture 106 comments
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The real crisis is coming… and it’s coming fast.
Indeed, it started last year, almost entirely off the radar of the American public. While all eyes were glued to the carnage in the stock market and brokerage account balances, a far more serious crisis began to unfold rocking 30 countries around the globe.
I’m talking about food shortages.
Aside from a few rice shortages that were induced by export restrictions in Asia, food received little or no coverage from the financial media in 2008. Yet, food shortages started riots in over 30 countries worldwide. In Egypt people were actually stabbing each other while standing in line for bread.
The developed world, most notably the US, has been relatively immune to these developments. For us, gas hitting $4 a gallon was a bigger deal than any hike in food prices. But for much of the developing world, in which food and basic expenses consume 50% of incomes, any rise in food prices can have catastrophic consequences.
And that’s not to say that food shortages can’t hit the developed world either.
According to Mark McLoran of Agro-Terra, the Earth’s population is currently growing by 70-80 million people per year. Between 2000 and 2012, the earth’s population will jump from six billion to seven billion. We’re expected to add another billion people by 2024. So demand for food is growing… and it’s growing fast.
However, supply is falling. Up until the 1960s, mankind dealt with increased food demand by increasing farmland. However, starting in the ‘60s we began trying to meet demand by increasing yield via fertilizers, irrigation, and better seed. It worked for a while (McLoran notes that between 1975 and 1986 yields for wheat and rice rose 32% and 51% respectively).
However, in the last two decades, these techniques have stopped producing increased yields due to their deleterious effects: you can’t spray fertilizer and irrigate fields ad infinitum without damaging the land, which reduces yields. McLoran points out that from 1970 to 1990, global average aggregate yield grew by 2.2% a year. It has since declined to only 1.1% a year. And it’s expected to fall even further this decade.
Thus, since the ‘60s we’ve added roughly three billion people to the planet. But we’ve actually seen a decrease in food output. Indeed, worldwide arable land per person has essentially halved from 0.42 hectares per person in 1961 to 0.23 hectares per person in 2002.
It’s also worth noting that diets have changed dramatically in the last 30 years.
For example, in 1985 the average Chinese consumer ate 44 pounds of meat per year. Today, it’s more than doubled to 110 pounds. That in of itself is impressive, but when you consider that it takes 17 pounds of grain to generate one pound of beef, you begin to see how grain demand can rise exponentially to population growth with even modest changes to diet.
It also helps explain why stocks-to-use for wheat and corn are now at their lowest levels in 30+ years.
If you’re unfamiliar with stocks-to-use ratios, they are used to determine the amount of food carried over in excess of current demand. Measured as a percentage of demand (so if stocks-to-use is 16%, the total worldwide stocks is currently 116% of demand), stocks-to-use are a good measure of how much extra food we’ve got left over after demand.
Currently the stocks-to-use ratios for corn and wheat are 17% and 23% respectively. On the surface, this sounds like we’ve got a lot of extra food lying around. But you’d be very mistaken to think that: remember a stocks-to-use of 0% would indicate we’re producing just enough food to meet demand in real time. At that point, one bad harvest and people start starving.
Now, stocks-to-use usually runs inverse to price (if supply goes lower, prices rise). And stocks-to-use for wheat and corn are at their lowest levels since the ‘70s. At that time, grains prices were more than three times as high as they are now.
Make no mistake, agriculture is at the beginning of a major multi-year bull market. We’ve got rapidly growing demand, reduced production, and decade low inventories. I can’t tell you when prices will begin to spike (timing is especially difficult given the degree of financial speculation in commodities), but at some point in the not-so-distant future, food prices will go up… WAY up.
I’ll detail how to profit from this trend in tomorrow’s essay. Until then…
Good Investing!
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This article has 106 comments:
Global warming supposedly will cause water shortages with devasting effects across the planet. Now while I believe global warming is a fantastic hoax, if it's not, it's going to bring into play vast areas of land that are now too cool to reliably produce crops like wheat and corn and will prove to be a boon to food production.
These commodity plays were out there last year. How many got suckered into them last year. The second time around there will be fewer suckers.
The unreported story is the demographic collapse of the western world, soon-to-be-declining populations in Europe and Japan, and the recessions caused by reduced demand for land and commodities.
To your excellent comments, I can only add that I, for one, am curious as to where sufficient credit supply for price rises will come from, in a depression?
I think pretty much all commodities are within 2% of multi-year highs, if they have not reached them already.
Quite often it is argued that "they are not making any more land", but this point is moot.
There will be money made in the AG sector, especially for those who supply the products that help to convert the nonproductive land in South America to productive land. But people who expect real corn, butter, and pork belly prices to rise constantly over a 10year+ time frame do not understand how much land there is in Brazil, that under current political conditions will be brought into use.
UV-B radiation, an increase of 11% reduces wheat yield by 24% according to the FAO- yet nobody seems to measure it at crop level
Troposheric ozone, pollutant in sunlight at crop level, a big hit on a day, say 96ppm reduces wheat yield 50%.
Peak oil- I say peak soil, there are fundamental problems following the P & K price rise in 08, the worlds land not as fertile because of financial constraint. Fertility does not return easily.
Average age of farmers in UK- 61, no new blood, few entrants in last 20 years, so who will do the work? Me? I am already knackered
But farmers are slaughtering dairy cows and the vast majority of arable land in Africa is going unused. Hydroponics promises huge increases in yields, and Monsanto earnings are in question as current prices aren't justifying the marginal improvement in yield.
And implementation of leading edge agricultural practices in the Ukraine alone (look at their yields compared to US) could absorb the expected growth in consumption for decades.
obizy.com IT asset management
You are so bang on the money with your article I hardly have words to describe the sense of concern and worry I have for friends I know overseas. Yes we are about to start experiencing global food shortages. And it will happen in some unexpected places. Not just the African nations most people write off as basket cases.
North American farms (the US and Canada) export more foods than any other nations. Without our grains and oilseeds much of the world will slip into famine. Grains in the bin have come close to amounting to no more than a 60 day global supply in recent history. One sharp drought and we will have a catastrophe all over the world.
I have talked recently about the Canadian crop reports and the dismal forecasts for this year. This is more than just casual news. Despite the recent heavy rains this crop is still not secure because of the very late planting and other factors such as infestation, root damage, drought stunting, thin grain survival rates and pests.
Rain is not enough to head off a poor harvest. This years potentially poor crop in Saskatchewan, North Dakota (and the Northern US grain belt) could spell disaster for the third world and developing nations. We cannot underestimate how quickly food costs might rise after a single North American drought.
China may be the single biggest producer but we are still the biggest of all exporters and that is the difference when it comes to commodity prices.
Excellent article.
(And why are we using food to make make biofuel. Idiotic isn't it)
I do think that food is one of the most important issues we have to deal with in the coming years. Call it the "new" oil if you like. And as Michael Young said earlier "food stuffs are inelastic". So true. And there is tremendous profit opportunity in that inelasticity.
Starvation is inelastic too though. That's where the trouble will be.
On Jun 22 04:19 PM Mad Hedge Fund Trader wrote:
> You've git it! During the sixties, new dwarf varieties, irrigation,
> fertilizer, and heavy duty pesticides tripled crop yields, unleashing
> a green revolution. But guess what? The world population has doubled
> from 3.5 to 7 billion since then, eating up surpluses, and is expected
> to rise to 9 billion by 2050. Now we are running out of water in
> key areas like the American West and Northern India, droughts are
> hitting Africa and China, soil is exhausted, and global warming is
> shriveling yields. Water supplies are so polluted with toxic pesticide
> residues that rural cancer rates are soaring. Food reserves are now
> at 20 year lows. Rising emerging market standards of living are consuming
> more and better food, with Chinese pork production rising 45% from
> 1993 to 2005. The problem is that meat is an incredibly inefficient
> calorie transmission mechanism, creating demand for five times more
> grain than just eating the grain alone. I won’t even mention the
> strain the politically inspired ethanol and biofuel programs have
> placed on the system. It is possible that genetic engineering, sustainable
> farming, and smart irrigation could lead to a second green revolution,
> but the burden is on scientists to deliver. The net net of all of
> this is that food prices are going up, a lot. Entertain core long
> positions in corn, wheat, and soybeans on the next dip, as well as
> the second derivative plays like Agrium (seekingalpha.com/symbo...),
> Potash (seekingalpha.com/symbo...) and Monsanto (seekingalpha.com/symbo...).
> You might also look at DB Commodities Tracking Index Fund (seekingalpha.com/symbo...).
> These will all surpass last year’s stratospheric highs at some point.
On Jun 23 01:06 AM nigel thornbury wrote:
> a gallon of milk costs 3.49, fillet de mignon, PLEASE> costs 10.99
> lb. hello where do you live, do the math, more people less food long
> term. More damaged land less production per acre, etc
Ag products are one of the the most likely areas to rise towards fall and into winter whereas metals can be fickle depending on the state of economic activity. With the exception of precious metals of course. If construction is in decline though most metals prices will fall. But that does not mean people will not eat. Grahams assessment of the future of food is as good as it gets in my opinion and so farming is a good business to be in. (unless your crop fails of course).
The fundamentals do support crop production and that can run contrary to a general commodity decline. This should be a very good year for those who bring in a good yield.
On Jun 23 01:49 AM jaydawg wrote:
> Graham I am with you 100% on this but my only question is short term
> like 3 months to a year do you think a market correction will drag
> down agricultural even though fundamentals don't support this drop.
On Jun 23 03:21 AM Kobe wrote:
> If you buy into the thesis that there will be a food crisis and agriculture
> is a great investment opportunity, dont buy agriculture stocks.
> Buy all the water stocks in the world because agriculture is the
> biggest user of water and the shortage in water is the bottleneck.
Got any good suggestions re: water stocks?
How about some stimulus money to repair the deteriorating water infrastructure in the USA. Everybody, just about everywhere, lives within a couple of miles of leaky pipes that spill valuable water back into the ground before anybody can use it. Anyone living over a limestone base experiences coliform contamination from agricultural surface water seeping down into the spring water below it.
Tell your elected reps to forget making more complexity and more regulations, and just get to work on the water supply.
I guess that "stigma" will become pass'e?
On Jun 22 04:45 PM greg weitzner wrote:
> Genetically engineered
> crops are going to become more and more important.
However, knowing the nature of the "beast" - with the beast being the federal government, it's just a matter of time before they rape the profits off of this industry and drive it to India, Brazil, etc (see DOHA Rountable) by way of "regulations" - think "auto industry".
Several major countries have already banned or have "bills" to outlaw GE foods.
On Jun 23 05:13 AM Doc 224899 wrote:
> Water !!
>
> How about some stimulus money to repair the deteriorating water infrastructure
> in the USA. Everybody, just about everywhere, lives within a couple
> of miles of leaky pipes that spill valuable water back into the ground
> before anybody can use it. Anyone living over a limestone base experiences
> coliform contamination from agricultural surface water seeping down
> into the spring water below it.
>
> Tell your elected reps to forget making more complexity and more
> regulations, and just get to work on the water supply.
And distribution has been the reason for food shortages, not production capacity.
Is there really the demand right now that is being predicted?
More people doesn't necessarily equate to more food demand unless they can afford to buy it. Much of the predicted growth is associated with a dietary change that is relatively recent in nature. If push comes to shove their 'new' diet can just as easily revert to more traditional eating patterns. Some of the demand associated with the 'new' diet may not pan out as well as some would hope for.
All in all demand will increase due to more mouths but economics and past social habits may limit it to some extent. What will really affect the price is a lack of supply due to regional weather conditions. Poor yields will be the driving factor.
Chinese have been using more bean oil each year for 40 years,
bean oil, in most of that time eas down..
Soros and Jimmy parted ways in teh early 80s..
Soros's neet worth soared, while li Jim's staggnated.
SEE abarrons 1989, eh was going long steel cos.
if you re right 2 yrs of 30 are you right or wrong?
On Jun 23 03:21 AM Kobe wrote:
> If you buy into the thesis that there will be a food crisis and agriculture
> is a great investment opportunity, dont buy agriculture stocks.
> Buy all the water stocks in the world because agriculture is the
> biggest user of water and the shortage in water is the bottleneck.
On Jun 23 09:09 AM Dean M wrote:
> I always get a kick out of claims of 'wasted' water. Is it permanently
> destroyed? I thought the water supply on the planet was a closed
> system.
I do most of my grocery shopping at Costco and 99 Cents store. I only buy things at grocery store with coupons and on sale. I use a 2-3% rewards credit card for the purchases.
When times are tough, you have to get more proactive and creative.
On Jun 23 01:06 AM nigel thornbury wrote:
> a gallon of milk costs 3.49, fillet de mignon, PLEASE> costs 10.99
> lb. hello where do you live, do the math, more people less food long
> term. More damaged land less production per acre, etc
My guess is that you're a typical CNBC investor - hate commodities but love loser sectors like financials and tech.
On Jun 22 05:15 PM Tony Petroski wrote:
> These scare stories are always amusing. The author writes "Thus,
> since the ‘60s we’ve added roughly three billion people to the planet.
> But we’ve actually seen a decrease in food output." He then describes
> "For example, in 1985 the average Chinese consumer ate 44 pounds
> of meat per year. Today, it’s more than doubled to 110 pounds." So
> food production is both going up and going down.
>
> Global warming supposedly will cause water shortages with devasting
> effects across the planet. Now while I believe global warming is
> a fantastic hoax, if it's not, it's going to bring into play vast
> areas of land that are now too cool to reliably produce crops like
> wheat and corn and will prove to be a boon to food production.<br/>
>
> These commodity plays were out there last year. How many got suckered
> into them last year. The second time around there will be fewer suckers.
>
>
> The unreported story is the demographic collapse of the western world,
> soon-to-be-declining populations in Europe and Japan, and the recessions
> caused by reduced demand for land and commodities.
Speaking of which, ever notice how many overweight people there are walking around. Apparently, food demand isn't very elastic.
You had it made in the shade and for being stupid you have lost it all......your future will be a very dark one that will much worse than it is in Cuba where TSHTF has lasted for over 46 years, as a matter of face the best place to be at WTSHTF here in the states would be in Cuba, and safer.
Why then don't I go back to Cuba? in the US on vacation for the past 53 years......about GM seeds, control the food and you will control the people.
So sad................ :(
That being said, be careful in the short run with your picks.
This is a very interesting discussion. Thanks for digging out all the facts of what's going on. I know Jim Rogers, who I admire greatly, is extremely bullish on agriculture and consider it the best bull market in commodities.
But, even though I accept ALL of the facts you cited in your article, and even though I admire Jim Rogers and understand all the arguments he made on agriculture commodities, I am now in strong disagreement with Jim Rogers, and with the point of view in this article. I believe agriculture is one of the worst commodity sector. It remains bullish but it also has the least room for growth among all commodities.
Please read one of my old articles to understand where I come from, regarding agriculture:
seekingalpha.com/artic...
Don't get me wrong, I am a US dollar bear. As dollar goes down. Almost everything else will go up in nominal US dollar term. But the question we care is, in comparable terms, instead of in dollar terms, are agriculture products actually going up, and going up by how much?
The room for value growth in agriculture is extremely limited. That's because it's capped by the saturating purchase powers of the poorest among the population. If the poor people are already spending 80%, 90% or even 95% of their incoming on food, do you expect them to double the food spending next, to 160%, 180% or 190% of their income? No, the highest you can go is 100%. The poor people will just have to buy LESS, and hence reduce demand.
The room for growth for agriculture is too limited because the demand destruction comes at too low a level.
On this topic I think I am going to write up an article detailing my thoughts on what is the best bull in commodity bull market. Bear with me while I am trying to put some thoughts together soon:
seekingalpha.com/autho...
Global incomes will rise, global food production will grow, and fertilizer demand will recover. So I'd buy the companies that own the rights to the limited phosphorous supply. One suggestion: LGDI.OB
On Jun 23 11:39 AM Dirk McCoy wrote:
> You can buy 6 filet mignons at Costco for $12 total, and that's not
> the only place. I actually bought milk for $1.49 at a local grocer
> a couple weeks ago, so if you're paying $3.29 then you have a distribution
> issue.
>
> And distribution has been the reason for food shortages, not production
> capacity.
On Jun 25 05:11 AM nobby73 wrote:
> A true filet mignon is cut from the tenderloin of a male cow, which
> is the smallest and most expensive part of the animal. To be able
> to buy 6 of these for $12 suggests either it is not actually tenderloin
> or the production standards are woeful. I just wish consumers would
> understand they get what they pay for and obsession with cheap meat
> damages farmers and consumers. If you want cheap food, just eat mashed
> potatoes.
On Jun 23 09:09 AM Dean M wrote:
> I always get a kick out of claims of 'wasted' water. Is it permanently
> destroyed? I thought the water supply on the planet was a closed
> system.
Congress is intent on passing new regulations that will determine what farmers plant.
Confiscatory fines will be imposed on those that resist.
I mean, seriously, what the hell do farmers know about farming that congress doesn't know better.
We'll be living in a freaking utopia once Barney Frank and Nancy Pelosi start deciding what we eat.
On Jun 23 03:48 AM buddhabill wrote:
>
seekingalpha.com/artic...
please dont double post
On Jun 22 04:19 PM Mad Hedge Fund Trader wrote:
> You've git it! During the sixties, new dwarf varieties, irrigation,
> fertilizer, and heavy duty pesticides tripled crop yields, unleashing
> a green revolution. But guess what? The world population has doubled
> from 3.5 to 7 billion since then, eating up surpluses, and is expected
> to rise to 9 billion by 2050. Now we are running out of water in
> key areas like the American West and Northern India, droughts are
> hitting Africa and China, soil is exhausted, and global warming is
> shriveling yields. Water supplies are so polluted with toxic pesticide
> residues that rural cancer rates are soaring. Food reserves are now
> at 20 year lows. Rising emerging market standards of living are consuming
> more and better food, with Chinese pork production rising 45% from
> 1993 to 2005. The problem is that meat is an incredibly inefficient
> calorie transmission mechanism, creating demand for five times more
> grain than just eating the grain alone. I won’t even mention the
> strain the politically inspired ethanol and biofuel programs have
> placed on the system. It is possible that genetic engineering, sustainable
> farming, and smart irrigation could lead to a second green revolution,
> but the burden is on scientists to deliver. The net net of all of
> this is that food prices are going up, a lot. Entertain core long
> positions in corn, wheat, and soybeans on the next dip, as well as
> the second derivative plays like Agrium (seekingalpha.com/symbo...),
> Potash (seekingalpha.com/symbo...) and Monsanto (seekingalpha.com/symbo...).
> You might also look at DB Commodities Tracking Index Fund (seekingalpha.com/symbo...).
> These will all surpass last year’s stratospheric highs at some point.
The great thing in ag futures or ETFs is, for a store of your money's value, what can beat investing in food? Hell, if I could somehow buy futures that would fluctuate with the price of food, medical care and housing for the rest of my life, I would, and never care if it increased or decreased in value, sell my business, move to the Caribbean and work as a towel boy at a resort.
There are papers out there depicting the income's of Chinese workers, relative to other first world countries, as growing and there are papers on the fact that the Chinese are switching their diet from grain based to meat based. Higher incomes do seem to correlate with higher consumption of meat products, which require more grain per pound to produce.
With that being said, someone spending 50% of their $10,000 yearly salary is clearly more than someone spending 75% of their $6000 income. Income growth is clearly an important factor in the bullish Agriculture play.
On Jun 24 04:10 AM Mark Anthony wrote:
> Graham:
>
> This is a very interesting discussion. Thanks for digging out all
> the facts of what's going on. I know Jim Rogers, who I admire greatly,
> is extremely bullish on agriculture and consider it the best bull
> market in commodities.
>
> But, even though I accept ALL of the facts you cited in your article,
> and even though I admire Jim Rogers and understand all the arguments
> he made on agriculture commodities, I am now in strong disagreement
> with Jim Rogers, and with the point of view in this article. I believe
> agriculture is one of the worst commodity sector. It remains bullish
> but it also has the least room for growth among all commodities.
>
>
> Please read one of my old articles to understand where I come from,
> regarding agriculture:
>
> seekingalpha.com/artic...
>
>
> Don't get me wrong, I am a US dollar bear. As dollar goes down. Almost
> everything else will go up in nominal US dollar term. But the question
> we care is, in comparable terms, instead of in dollar terms, are
> agriculture products actually going up, and going up by how much?
>
>
> The room for value growth in agriculture is extremely limited. That's
> because it's capped by the saturating purchase powers of the poorest
> among the population. If the poor people are already spending 80%,
> 90% or even 95% of their incoming on food, do you expect them to
> double the food spending next, to 160%, 180% or 190% of their income?
> No, the highest you can go is 100%. The poor people will just have
> to buy LESS, and hence reduce demand.
>
> The room for growth for agriculture is too limited because the demand
> destruction comes at too low a level.
>
> On this topic I think I am going to write up an article detailing
> my thoughts on what is the best bull in commodity bull market. Bear
> with me while I am trying to put some thoughts together soon:
> seekingalpha.com/autho...
On Jun 25 08:44 AM yellowhoard wrote:
> No need to worry.
>
> Congress is intent on passing new regulations that will determine
> what farmers plant.
>
> Confiscatory fines will be imposed on those that resist.
>
> I mean, seriously, what the hell do farmers know about farming that
> congress doesn't know better.
>
> We'll be living in a freaking utopia once Barney Frank and Nancy
> Pelosi start deciding what we eat.
I agree with your article in general (although not to the same degree), but statements like the quote above really hurt your credibility. That statement defies the laws of physics. Did we produce enough food for another 3 billion people in 1960 and simply throw it away? Or are there 3 billion new people that don't have enough food to last a week?
On Jun 25 11:44 AM 376602 wrote:
> Organic farmers and tofu processors will prosper after the EPA
> decides to investigate Conventional growers and designates the farmlands
> are new Superfund sites. Goal? destroy the Matrix!
On Jun 22 06:35 PM UK farmer wrote:
> Sunspot activity was near a Maunder minimum in 08, reducing radiation
> to the crops below, they responded increasing wheat yields globally
> by 12%. From a reading of 3 in April 08, the peak will be in Oct
> 2011 at 145 according to spaceweather. So will see.
> UV-B radiation, an increase of 11% reduces wheat yield by 24% according
> to the FAO- yet nobody seems to measure it at crop level
> Troposheric ozone, pollutant in sunlight at crop level, a big hit
> on a day, say 96ppm reduces wheat yield 50%.
> Peak oil- I say peak soil, there are fundamental problems following
> the P & K price rise in 08, the worlds land not as fertile because
> of financial constraint. Fertility does not return easily.
> Average age of farmers in UK- 61, no new blood, few entrants in last
> 20 years, so who will do the work? Me? I am already knackered
On Jun 22 10:00 PM Dirk McCoy wrote:
> I paid $1.79 for a gallon of milk, $2.00 for a filet mignon, and
> $.99 for a loaf of wheat bread today- so what are you talking about?
I am just beginning to study the annual reports. The others are:
Potash One (KCL.TO)
Athabasca Potash (ABI.TO)
Western Potash (WPX.V)
Reward Minerals (RWD.ASX)
Auspotash (no listing yet)
My advice: DO NOT BUY any of them without study and thought.
If anyone knows of another company like the above, please post the name and listing. Thanks.
On Jun 25 05:06 PM User 113966 wrote:
> Where do you live? 1973?
On Jun 25 05:11 AM nobby73 wrote:
> A true filet mignon is cut from the tenderloin of a male cow, which
> is the smallest and most expensive part of the animal. To be able
> to buy 6 of these for $12 suggests either it is not actually tenderloin
> or the production standards are woeful. I just wish consumers would
> understand they get what they pay for and obsession with cheap meat
> damages farmers and consumers. If you want cheap food, just eat mashed
> potatoes.
Actually, it is a little annoying to be reading this shopping list over and over. Maybe he clips coupons. Who cares.
On Jun 25 05:06 PM User 113966 wrote:
> Where do you live? 1973?
If "higher income" does not allow you to buy more food or more of the daily necessities, then what makes you think that people are having a "higher" income, just because the numerical number of their salaries look higher in fiat currency term? If the purchasing power has not increased, then all you have is depreciating fiat currency and inflation, NOT "higher income". And such false "higher income" surely will NOT increase food demand, as your income can not purchase more food.
Let's use the median daily income of a median person of median wealth in the world as a reliable measurement of valuation. Then the true value of food is decided by what percentage of such median income is dedicated to obtaining food, and what quality of food such income will buy.
As food expense is already approaching 100% for the poorest 50% of the world's population, the potential for value grow of agriculture is extremely limited, because that percentage can not exceed 100%. When food prices go up, demand destruction kicks in pretty quickly here: the poorest of the poor will have to immediately reduce purchase so the food expense remain below 100% of their budget.
And then, cattles like caws and pigs will have to give up their food as well, as it is no longer economical for farmers to feed grains to animals to produce meat, milk and eggs.
So I believe judging a commodity's bullish potential really depends on what a percentage that commodity cost in a typical person's spend budget.
For example, my favorite precious metal palladium has much bigger potential than food. Current price of palladium is only $250 per ounce. It would have to go much much much higher, for a palladium based wedding ring to become so expense that it is a very significant percentage of a person's annual income, that he/she need to choose between the wedding ring and food. Right now that percentage is virtually 0%.
On Jun 25 11:43 AM Peter Iwanowicz wrote:
> Although you're argument is correct in assuming that people will
> not spend more than 100% of their income on food, you're assumption
> seems to be focused on the fact that income's for these third world
> countries is going to be flat.
>
> There are papers out there depicting the income's of Chinese workers,
> relative to other first world countries, as growing and there are
> papers on the fact that the Chinese are switching their diet from
> grain based to meat based. Higher incomes do seem to correlate with
> higher consumption of meat products, which require more grain per
> pound to produce.
>
> With that being said, someone spending 50% of their $10,000 yearly
> salary is clearly more than someone spending 75% of their $6000 income.
> Income growth is clearly an important factor in the bullish Agriculture
> play.
That these prices remind you of 1973 (actually, a gallon of milk was $1.38 and a dozen eggs $.79) is exactly my point. While global population and living standards have been rising, food costs have declined in inflation-adjusted terms. As living standards continue to improve, birth rates will decline.
As for LGDI.OB- when I see a stock where a major customer- the largest fertilizer concern in India- has invested (at valuation of 4X current price) in a potential boom market- and said stock market cap is appx. equal to cash- that seems like a pretty safe bet to me.
I don't know anything about the other phosphate companies listed.
Japan just reported 1.1% decline: "Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971."
All commodities will further fall (a lot) as the recession deepens. The same fools that brought you dot com and $500 oil are behind the commodity bubble stories - be very very wary - bottom can very easily fall off.
I noted mention of Monsanto, but what about Syngenta?
Climate change, whether anthropogenic or independent of human activity is a big deal. Global Warming disrupts weather patterns. Take a look at how the shift in warm water currents in the Pacific wreaks havoc with el nino and la nina.
It's not as simple as cold areas becoming warmer and suddenly becoming fertile swaths.
I noted mention of Monsanto, but what about Syngenta?
Climate change, whether anthropogenic or independent of human activity is a big deal. Global Warming disrupts weather patterns. Take a look at how the shift in warm water currents in the Pacific wreaks havoc with el nino and la nina.
It's not as simple as cold areas becoming warmer and suddenly becoming fertile swaths.
On Jun 23 03:21 AM Kobe wrote:
> If you buy into the thesis that there will be a food crisis and agriculture
> is a great investment opportunity, dont buy agriculture stocks. Buy
> all the water stocks in the world because agriculture is the biggest
> user of water and the shortage in water is the bottleneck.
On Jun 22 09:49 PM paultheprofit wrote:
> For all of you putting down the Author's position...perhaps you should
> go shopping at your local grocery store...
On Jun 25 07:07 PM Mark Anthony wrote:
> Peter:
>
> If "higher income" does not allow you to buy more food or more of
> the daily necessities, then what makes you think that people are
> having a "higher" income, just because the numerical number of their
> salaries look higher in fiat currency term? If the purchasing power
> has not increased, then all you have is depreciating fiat currency
> and inflation, NOT "higher income". And such false "higher income"
> surely will NOT increase food demand, as your income can not purchase
> more food.
>
> Let's use the median daily income of a median person of median wealth
> in the world as a reliable measurement of valuation. Then the true
> value of food is decided by what percentage of such median income
> is dedicated to obtaining food, and what quality of food such income
> will buy.
>
> As food expense is already approaching 100% for the poorest 50% of
> the world's population, the potential for value grow of agriculture
> is extremely limited, because that percentage can not exceed 100%.
> When food prices go up, demand destruction kicks in pretty quickly
> here: the poorest of the poor will have to immediately reduce purchase
> so the food expense remain below 100% of their budget.
>
> And then, cattles like caws and pigs will have to give up their food
> as well, as it is no longer economical for farmers to feed grains
> to animals to produce meat, milk and eggs.
>
> So I believe judging a commodity's bullish potential really depends
> on what a percentage that commodity cost in a typical person's spend
> budget.
>
> For example, my favorite precious metal palladium has much bigger
> potential than food. Current price of palladium is only $250 per
> ounce. It would have to go much much much higher, for a palladium
> based wedding ring to become so expense that it is a very significant
> percentage of a person's annual income, that he/she need to choose
> between the wedding ring and food. Right now that percentage is virtually
> 0%.
>
> On Jun 25 11:43 AM Peter Iwanowicz wrote:
The point is the 50% poorest people do not have more money to pay for their food and have to cut back. And then richest 50% people do NOT want to buy more food than they can eat so their demand is not growing either. The fact of the matter is this puts an extremely tight limit on the potential how high agriculture commodities can go, in real purchase power terms.
Palladium and tellurium, for example are way much more bullish and much bigger room for growth in value.
seekingalpha.com/artic...
On Jun 26 12:43 PM Peter Iwanowicz wrote:
> Good point in letting me know that 50% of the poorest countries spend
> almost 100% of their income on food. I'm sure the bullishiness in
> commodities has nothing to do with the 50% richest....
When the price of feed rises to the point where it is more economical to sell the feed to humans, our meat consumption will reduce (through increased pricing) and improve to grass-fed beef. Anyone ever eaten grass-fed Angus? Amazing stuff. How about naturally raised pork (they root around for wild turnips and nuts). Very flavourful. And as an end result, everyone is more healthy due to more whole grains consumed, less meat, but the meat is low-fat. Healthcare costs reduced.
I am not American, and can observe that everyone needs to change, but Americans need to change more.
On Water being a closed system: Yes, the earth is a closed water system. Current climate modelling suggests it will all end up in the oceans. You can't drink that or water your cornfields. Long on GE desalination, CGW/CWW, etc.
On Jun 22 10:00 PM Dirk McCoy wrote:
> I paid $1.79 for a gallon of milk, $2.00 for a filet mignon, and
> $.99 for a loaf of wheat bread today- so what are you talking about?
The result is that seeds that were once common and used by everyone who grows food suddenly became illegal in a game of lawyers litigation.
Sure hippies gathered together seeds for swapping amongst each other world wide but thanks to newly introduced quarretine regulations by organisations such as the EU and UN this ground to a halt.
Today there is NO food shortage!
There is a Money Shortage!
There is TRUTH shortage and people like Jim Rodgers are busy destroying as much of that Truth as they possibly can.
Go to various countries where there is a food shortage and you will perfectly arable land laying fallow because the local farmers cannot buy seeds. Seeds supplied by the vewry firms who now hold patents.
The same farmers cannot buy the seeds because the cost is too high.
Hifg,because guys like Rodgers see money in farming and have forced up costs through their dealing.
This leads us back to the stock exchange and the lack of TRUTH.
The housing crises is but symptom of that lack of Truth .
Once more people realise that one move made on Wall Street creates a problem at the end of fianacial chain then perhaps the worlds hungry will once again eat.
On Jun 22 04:45 PM greg weitzner wrote:
> This is why I believe Monsanto, an extremely well run company, is
> going to be a great stock over the next ten years. Genetically engineered
> crops are going to become more and more important. Global warming
> and climate change will precipitate the need for more draught resistant
> crops which Monsanto has developed and is developing more of. Not
> to mention the high yield seeds Monsanto sells. The negative stigma
> surrounding genetically engineered crops is soon to be a thing of
> the past and Monsanto is sure to benefit.
There's one negative thing about Legend International which caught my eye when I read the annual report some time back. Its officers are also officers of 4 (or 5) other corporations housed at the same mailing address. Plus, they are drawing hefty salaries at Legend which hasn't yet started mining.
And his concluding line is, "I’ll detail how to profit from this trend in tomorrow’s essay."
Does no one else find this even a little disturbing? While a large number of the commenters are, thankfully, discussing how this potential worldwide catastrophe might be addressed and averted, Mr. Summers' primary concern is how to make money from it?
It's no wonder so many sane citizens, here and abroad, see professionals in the world of money, banking, and finance - in fact a majority of business CEOs and officers - as not quite human.
The definition of a sociopath is one "whose behavior is antisocial and who lacks a sense of moral responsibility or social conscience. . . Sociopaths are interested only in their personal needs and desires, without concern for the effects of their behavior on others."
When the thesis of an essay and the primary concern of financial writers and investors is how to profit from what for many may be unaffordably high prices, hunger, and violence - how is that not somewhat sociopathic?
(I wonder the same thing when businesses decide a few wrongful death lawsuits can be allowed, because the potential settlements are still far less expensive than actually fixing the problem that will cause these deaths. How are the corporate officers and executives who make this decision indistinguishable from an individual who likewise shows no regard for human life? Why, when a company knows beforehand that one or more deaths will occur because of to their failure to correct a defect, do we charge them with "negligence" when an individual would be charged with manslaughter or murder?
As for those investors who do make money from the hunger "trend"...
After profiting from others' misfortune, will they then invest those returns, or even a portion, in solutions to world problems? Will they choose to be REAL investors, placing capital in the hands of those who are working to increase food production, solve water shortages, start companies to make worldwide food distribution more efficient, prevent the gross waste and spoilage that too often destroys food desperately needed elsewhere?
Or will these armchair investors sit back and congratulate themselves on their cleverness and foresight, count their cash contentedly, then enjoy their early retirement, new car, European vacation, home remodel, big screen TV, steak, lobster and wine...and maybe fling a few hundred bucks to a food charity then pat themselves on the back for being so generous, so magnanimous?
The world may soon have too little food to feed its people, says strategist Summer. But enough gloom and doom. Lets talk about how much money we could all make from that!
Sorry, but the only thing this article left me with was a persistent feeling of mental nausea.
cordwainer
On Jun 22 09:58 PM Dirk McCoy wrote:
> I hope agricultural commodities perform well going forward, it will
> be a key for America to work off its debt.
>
> But farmers are slaughtering dairy cows and the vast majority of
> arable land in Africa is going unused. Hydroponics promises huge
> increases in yields, and Monsanto earnings are in question as current
> prices aren't justifying the marginal improvement in yield.
>
> And implementation of leading edge agricultural practices in the
> Ukraine alone (look at their yields compared to US) could absorb
> the expected growth in consumption for decades.
On Jun 25 09:44 PM Dirk McCoy wrote:
> Western suburbs of Chicago, Costco, Aldi, Butera. Milk at Aldi was
> $1.79, and a dozen eggs cost $.89 today, June 24, 2009.
>
> That these prices remind you of 1973 (actually, a gallon of milk
> was $1.38 and a dozen eggs $.79) is exactly my point......
Major chain grocery stores will have what they call "loss leaders" basic items such as eggs and milk and selected sale items, priced to good to be true. They are priced at break-even or below to get you in the store so you will spend on other things.
The average price of groceries has climbing along with fuel.
Now that fuel prices dropped, groceries haven't because futures contracts food processers unwisely bought, and now they're paying too much for cheapened ingredients.
Which county and state do you live in? What are the current food prices in your area (if you're not sure just post a link to a flyer)? How do these compare to 2000? If you can pull up info on this that would be much more helpful.
Here in Canada, where we produce much of the food we consume, prices have consistently gone up thanks to our spend thrift government.
On Jun 23 11:39 AM Dirk McCoy wrote:
> You can buy 6 filet mignons at Costco for $12 total, and that's not
> the only place. I actually bought milk for $1.49 at a local grocer
> a couple weeks ago, so if you're paying $3.29 then you have a distribution
> issue.
>
> And distribution has been the reason for food shortages, not production
> capacity.
Go ahead and buy, Dirk McCoy. To me, this is enough reason to look elsewhere.
I live in an ag area. Last year, local corn production went from 100 bu/acre to 270! IN ONE YEAR.
Even with local ethanol plants running full tilt, we had a glut of corn. Weather was excellent and new hybrid corn VASTLY exceeded expectations.
Milk prices are collapsing. Why? Demand has all but disappeared. It doesn't occur to the ag perma bulls that in recessions, people eat less. Demand for Cappucino, milk based soft drinks and processed milk products got hammered. Milk prices fell 50%.
America consumes about 1.2 trillion calories a day. For the Average American, that's about 650 bn calories more than they need or should.
On Jun 22 05:15 PM Tony Petroski wrote:
> These scare stories are always amusing. The author writes "Thus,
> since the ‘60s we’ve added roughly three billion people to the planet.
> But we’ve actually seen a decrease in food output." He then describes
> "For example, in 1985 the average Chinese consumer ate 44 pounds
> of meat per year. Today, it’s more than doubled to 110 pounds." So
> food production is both going up and going down.
>
> Global warming supposedly will cause water shortages with devasting
> effects across the planet. Now while I believe global warming is
> a fantastic hoax, if it's not, it's going to bring into play vast
> areas of land that are now too cool to reliably produce crops like
> wheat and corn and will prove to be a boon to food production.<br/>
>
> These commodity plays were out there last year. How many got suckered
> into them last year. The second time around there will be fewer suckers.
>
>
> The unreported story is the demographic collapse of the western world,
> soon-to-be-declining populations in Europe and Japan, and the recessions
> caused by reduced demand for land and commodities.
That is to say, you play the derivatives of water.
On Jun 23 12:48 PM Whippet wrote:
> I agree in principle, but how do you play water? It has got to be
> the most politicized, manipulated part of the entire "recipe" for
> agriculture. Just look at California right now- some damn minnow
> is forcing thousands of farmers out of business. All because of an
> EPA mandate.
Peter is focusing on the moral and ethical issues, commenting on the heart and soul of the issue, talking about what he thinks “should be” as opposed to what “is”. The rest of us are talking about the investing aspects. Sadly, agriculture and water and food supply are factors that will inevitably be involved in the global economic contraction that we all face in conditions of absolute peak commodities, and absolute peak oil. The population will have to shrink because populations are exceeding the life support capacity of the planet, and starvation and disease are the processes the planet will use to reduce the population. The rate of deaths will exceed the rate of births, on a global scale.
Since this is what will happen, because natural resources are not infinite, we can recognize that most people will lose money, and a small number will gain money. If I have the chance, I intend to be one of the people who gains money. It is not selfish or cruel, since everybody who has ever been born has died at some point, and we're merely facing it and recognizing how it will happen.
On Jun 26 01:27 PM Mark Anthony wrote:
> Peter:
>
> The point is the 50% poorest people do not have more money to pay
> for their food and have to cut back. And then richest 50% people
> do NOT want to buy more food than they can eat so their demand is
> not growing either. The fact of the matter is this puts an extremely
> tight limit on the potential how high agriculture commodities can
> go, in real purchase power terms.
>
> Palladium and tellurium, for example are way much more bullish and
> much bigger room for growth in value.
> seekingalpha.com/artic...
>
Your comment only illustrates the problems with government help. A farmer friend just reported that a 3,000 cow dairy is now operating at a LOSS of $1,000,000 a quarter. That is $100 a month a cow loss. US farmers have become very specialized and have applied capital to achieve darned high efficiencies for their operations.
There is an interesting article in New Scientist which somewhat summarizes two other articles. Links to those are provided there. Final analysis is that humans are now farming 1.4 billion hectares. there are an additional 1.6 billion hectares that could be farmed. Much of that is in Africa and Latin America. From the article:
www.newscientist.com/a...
DOOM-MONGERS have got it wrong - there is enough space in the world to produce the extra food needed to feed a growing population. And contrary to expectation, most of it can be grown in Africa, say two international reports published this week.
On Jun 24 04:01 AM Dan in mpls wrote:
> I am sure that world wide food production is headed the wrong way
> vs. population but there SURE is a TON of fallow land in Wisconsin
> that the US government keeps out of production with insane pricing
> policies. I also see the big dairy farmers there selling milk at
> a loss right now while in arid California the milk supports are higher.
> The government is squarely in the way of large increases in production
> there. Global warming, if there is anything to it, would bring a
> lot of land there into more profitable use. The problem is that its
> getting colder, not warmer, despite what we read.
In the same way, potable freshwater in pipes, that leaks into the ground, is still water but it cannot be used in the same way that it could have been used before it leaked out of the pipes, and it takes money and energy and resources to recover it that would never have needed to be expended if it hadn't leaked.
Much of the population of Africa is diseased because of the lack of clean freshwater.
With water, as with the rest of life in the state of nature, there are no free rides. Most Americans take water for granted because they don't know where it comes from and how it is obtained and distributed.
On Jun 23 09:09 AM Dean M wrote:
> I always get a kick out of claims of 'wasted' water. Is it permanently
> destroyed? I thought the water supply on the planet was a closed
> system.
But don't forget about rain- it is the source of fresh water on the planet, and most of it is wasted. But just as LA can bring in water from Arizona, many parts of the world can move water- UK from North to South, China from South to North, etc.
This will take large infrastructure and energy. But there are plenty of people (a glut of them, some on here say) and solar can provide plenty of energy for these projects. All it takes is vision and money (and that can be printed).
My investment in AG was when I bought land here in Hawaii. None of the mango, papaya, guava, Tahitian lime, Puna orange, Lilikoi, Lychee and Ulu trees here are sprayed and they produce bountiful supplies all year long. In fact all I ever do is just pick the fruit. For protein we have wild pigs that graze on our property and in the nearby jungle and one and a half miles down the road is the beach where tons of reef fish congregate. The Earth here is rich in volcanic nutrients and the rains fall as if God were watering, just enough, and every day, so there is no water shortage. Maybe the best strategy is to position yourself in the most food abundant areas on the Planet instead of spending hundreds of thousands of dollars on MON stock. You can't eat stock certificates ...
I for one believe that Modern Man has placed himself on too high a pedestal. We have been conned into believing that we control the Earth and Sky that has been here for a gazillion years before we were ever even conceived. I will illustrate ... I have property on the Big Island where the volcano has been erupting since the 1980s. Now if you place yourself directly in the path of the sulfuric acid steam cloud you would most assuredly perish very quickly. This highly toxic gigantic steam cloud makes any coal exhaust look minuscule in comparison, yet for 30 years the volcano has been belching toxins into the atmosphere but somehow the population of Hawaii keeps growing over that same time period. In fact if you go down to see the volcano you will find many people living in houses not more than a ten minute walk from one of the most deadly sulfuric acid steam clouds on the Earth. This cloud carries for miles and miles into the atmosphere. So here we sit living side-by-side with highly toxic pollutants every day yet we have some of the best air quality in the World. No coal-fired or oil-fired power plant can rival the magnitude of this volcano from Mother Earth. Weather patterns have not changed since I have been living here in Hawaii. Still tons of rain and our fruit trees are full to capacity. The fish are abundant and the wild pig population gets larger every year. Where is this "Inconvenient Truth" Al? I will agree that the polar bear population has been devastated here in Hawaii and I sadly report not a single bear has been sighted for centuries!
Now I will agree there is some absolute stupidity in the US government, in the form of George Bush using food crops to power gas hog SUVs! There are alternatives and one that has been on the Planet for over 100 years. The first diesel engine ran on hemp oil. I know plenty of hemp smokers in Hawaii but I have yet to meet one that eats it. The impotent and IQ challenged powers that be who grow government instead of food will object to hemp since they have built a powerful lobby known as the DEA that must not be dismantled. Everyone here remember that WAR? The WAR ON DRUGS? Yet another eternal WAR that is sapping the productive capital our of our life blood. Combine that with the WAR ON TERROR, or as OBAMA has renamed it "THE WAR ON PEOPLE WHO DO NOT EAT AT MCDONALDS", and we have what I term an INFINITE INFLATION MACHINE that not only inflates the money base but the government's size. There are other non-food sources like algae, of which the abundance is unending.
Rather than Global Warming I fear Global Government ... which is growing like a rapacious cancer in every country on Earth.
Let me point out that on June 30th and July 1st OBAMA jacked up the US PUBLIC DEBT over $217BIL USD ... just two days, according to the US TREASURY DAILY STATEMENT. In one day $190BIIL USD. Want to see someone rack up $190BIL USD of DEBT in one day? There is no limit to our government's ability to SPEND! And that's how they like it ... Then on July 2nd he jacked up all the entitlements like Medicare, Medicaid, Social Security, SSI, Civil Service ... to the tune of another $56BIL USD. Then to rub our faces in it he jacked up our "GSE INVESTMENT" ... What is that you may ask? YEP, that's an actual line item on the US TREASURY DAILY FINANCIAL STATEMENT that tracks our "investment" in Fannie Mae and Freddie Mac. How much did OBAMA pump into those flogged DEBT HOLES? $25.1BIL USD ... yet they only "publicly" announced $6.1BIL of that amount going to Freddie Mac.
So I ask ... OBAMA can't you cut more than $100mil of spending? Is there not anywhere the US government can cut costs and downsize? Here is his reply ... Meet the Executive Orders ...
• White House Office of Health Reform; establishment: EO 13507
• White House Office of Urban Affairs; establishment: EO 13503
So far OBAMA has written up ten Executive Orders in six months but these two are like DEBT bombs waiting to go off! Lets hope OBAMA(FDR jr) is not as good as the original FDR at writing Executive Orders. FDR wrote 3,728 Executive Orders while he was in office, light years ahead of any other President. At one per working day that is 14.2 years worth of Executive Order writing and he was only in office for 12 years, I am amazed he had time to run the Great Depression and WW2!
If we just dumped what we have spent on Fannie and Freddie we could develop hemp oil and we could nurture food production instead of fraud! What could we have done with $700BIL that Bush gave to Hank Paulson and the bank lobby or as I prefer the MONEY MONOPOLY!
The real problem facing us is not food shortages its the shortage of "real leaders", its the shortage of "honest men" in Washington DC ... What is the point of producing food if the citizenry cannot afford it? At this rate Americans will starve and go broke all at the same time!
“He who is unfit to serve his fellow citizens wants to rule them.”
-Ludwig Von Mises
On Jun 25 07:26 AM Windsun33 wrote:
> You keep coming up with that theme, and apparently do not realize
> that things like sea water, sewage, or chemically contaminated water
> are not all that useful for human consumption.
seekingalpha.com/artic...
Enjoy!