The Federal Reserve’s historically easy monetary policy is driving commodities higher. Legendary investor Jim Rogers is extremely bullish on commodities. Last month Rogers commented that the recent decline in gold and copper is nothing more than corrections in a major bull market, and it still has years to go. Rogers argued that massive money printing will make investors put some of their money in the stock market, but that more money will go into commodities.
So far, Jim Rogers seems to be right. Global food prices are soaring and have been a major factor igniting the turmoil in the Middle East. Soaring food prices will certainly benefit some companies. Heather Jones, a senior equity analyst at BB&T Capital Markets, told CNBC that the core supply demand fundamentals for the soft commodities are relatively bullish. “Driven by major supply destruptions across the major producer countries and given how tight stocks are we do not expect them to be replenished for another year, two years. So we would expect prices to be high relative to historical averages for the next 12 to 18 months.” she said.
There are some concerns that interest rate increases might cause a significant decline in commodity prices. Jones thinks it is too early to say this is gonna happen given how robust the demand in China is. BB&T Capital Markets is extremely bullish about two companies:
1. Andersons Inc. (NASDAQ:ANDE): “Andersons has the largest grain elevator network in the eastern corn belt. And is also a large seller of fertilizer. All these businesses should benefit from increased acreage,” Jones said. Andersons closed 2010 at $36 per share and currently trades at $46. Jones thinks the stock has further to go.
2. Corn Products International (CPO): “Corn Products did a very good acquisition last year that has greatly improved their earnings trajectory. But they also benefit from a substitution effect. Historical highs in sugar have driven a lot of demand into the corn sugar which are about half the price of global sugar at this point,” Jones said. CPO returned 1% so far in 2011 and underperformed the market.
When asked a question about Kraft (KFT), Heather Jones said the following:
“I do not follow Kraft but I will say they were presented today and they were still confident in their earnings outlook. They also talked about their efforts to put in place pricing. I think some of these companies are feeling more comfortable about their ability to pass on pricing given that a number of their competitors are doing the same thing. I believe that Kraft said and others are saying as well that given that caution of the consumer they do believe that possibly they are going to have to use cost savings along with price increases. But they will be raising prices. So I think the investors are getting more confident in the ability of these companies to secure pricing”
These aren't the typical stocks hedge funds pick when they are bullish about food prices. So far most hedge funds picked Potash (NYSE:POT) or CF Industries (NYSE:CF) to take advantage of soaring food prices. John Burbank's Passport Capital, David Einhorn's Greenlight, Daniel Loeb’s Third Point, Tom Steyer’s Farallon Capital, Andreas Halvorsen’s Viking Global, Jim Simons’ Renaissance, Richard Perry’s Perry Capital and Mohnish Pabrai bet on Potash. CF Industries is one of the 10 stocks hedge funds own the most of.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.