Jordan Rizzuto

Agricultural Commodities a Great Opportunity - Marc Faber

I believe Marc Faber is misquoted in this article. The following statement is grossly inaccurate: "...higher yielding agricultural methods yet those benefits have run their course. Productivity fell by almost half between 1990 and 2007 and will continue that trend over the next decade."

Productivity (yield) is measured as crop production per land unit harvested. We can source the historical data for corn, soybeans and wheat through the Foreign Agriculture Service's database at fas.usda.gov. The data clearly demonstrate that since the 1990/91 crop year:

Global corn yield has grown at a 1.7% compound annual growth rate.

Global soybean yield has grown at a 0.8% compound annual growth rate.

Global wheat yield has grown at a 1.0% compound annual growth rate.

These figures may seem small, but keep in mind that they represent compound rates. So in fact, we see that global productivity has actually risen steadily over this time period.

The long term investment thesis for agriculture is compelling indeed. The primary driver here is that while yields are increasing (contrary to the mis-statement in this article), the global consumption rates for corn and soybeans are growing at a much faster clip. Wheat productivity has actually kept pace with consumption growth over the period.

This condition of consumption eclipsing productivity is simply not sustainable in the long run, and barring significant technological advances, this certainly bodes for an upward bias in grain prices in the future.

Soybeans' Price Gains Are Fertilizers' Loss

soxwhite,

While soybeans do require phosphate to boost yield, corn still consumes far more per acre than beans do.

If you run through the NASS database (from USDA's website) and access historical fertilizer consumption and historical acres planted for each crop, you will see that over the last ten years corn has consumed 3.6 times as much phosphate (tons/acre) as soybeans in the U.S.

While this ratio may vary depending on geography, soil types and farming practices, investors should be cognizant that more soybeans planted at corn's expense will depress marginal demand for crop nutrients. This dynamic will naturally affect the manufacturers' top line results differently depending on their distribution share between nitrogen, phosphate and potash.


On Apr 23 05:50 PM soxwhite wrote:

> You should make readers aware that while beans do not use as much
> total fertz.as corn,beans require significant amounts of phosphate,lesser
> potash and no nitrogen.This could be bullish for some fertilizer
> producers.

Fertilizer Manufacturers Face an Uphill Battle

Mad Hedge Fund Trader,

If you are interested in macro-level climate scenarios, here is an article on the current solar cycle that our science center recently published:
www.stormx.com/agricul.../


On Apr 17 11:36 AM Mad Hedge Fund Trader wrote:

> Not for the long term. Pack your portfolios with agricultural plays
> like Potash (seekingalpha.com/symbo...), Mosaic (seekingalpha.com/symbo...),
> and Agrium (seekingalpha.com/symbo...) if Dr. Paul Ehrlich
> is just partially right about the impending collapse in the world’s
> food supply. You might even throw in long positions in wheat, corn,
> soybeans, and rice. The never dull, and often controversial Stanford
> biology professor told me he expects that global warming is leading
> to significant changes in world weather patterns that will cause
> droughts in some of the largest food producing areas, causing massive
> famines. Food prices will skyrocket, and billions could die. At greatest
> risk are the big rice producing area in South Asia, which depend
> on glacial run off from the Himalayas. If the glaciers melt, this
> will be gone. California faces a similar problem if the Sierra snowpack
> disappears. Rising sea levels displacing 500 million people in low
> lying coastal areas is another big problem. One of the 77 year old
> professor’s early books “The Population Bomb” was required reading
> for me in college in 1970, and I used to drive up from Los Angeles
> to hear his lectures (followed by the obligatory side trip to the
> Haight-Ashbury). Other big risks to the economy are the threat of
> a third world nuclear war caused by population pressures, and global
> plagues facilitated by a widespread growth of intercontinental transportation
> and globalization. And I won’t get into the threat of a giant solar
> flare frying our electrical grid. “Super consumption” in the US needs
> to be reined in, where the population is growing the fastest. If
> the world adopts an American standard of living, we need four more
> Earths to supply the needed natural resources. We need to raise the
> price of all forms of carbon, preferably through taxes, but cap and
> trade will work too. Population control is the answer to all of these
> problems, which is best achieved by giving women an education, jobs,
> and rights, and has already worked well in Europe and Japan. All
> sobering food for thought.

Mosaic's Growth Story

Investors may want to err on the conservative side right now with earnings expectations. The supply-side fundamentals (bulging inventories) are currently not favorable to phosphate and potash as we enter planting season. The recent trend in the November soybeans : December corn ratio is also telling us that growers are favoring beans more than corn for marginal acres right now. Lost corn acres will depress marginal fertilizer demand this spring and summer.

If you want to read more on this topic: www.stormx.com/agricul.../

Meat: A Tasty Investment Opportunity

Feed costs will increasingly influence livestock companies' profitability in the coming years. The spike in grain prices last year crushed margins and forced many producers to liquidate inventories. You can track daily and seasonal influences on grain prices at stormx.com/agriculture.

Grain Prices Require Substantial Support to Overcome Bearish Fundamentals

nova,

The fertilizer companies' earnings power is levered to these grain prices. If you trade or invest in the names you list here, following these fundamental drivers will assist you in estimating future profitability.

For example, fertilizer companies that have a heavy revenue concentration in nitrogen will be very sensitive to corn prices, as corn requires much more fertilizer relative to the other grains. Higher corn prices (relative to soybeans) will give producers incentive to plant more corn acres. This in turn will boost marginal demand for nitrogen, and its distributors will have greater pricing power in a bullish price environment.

You can follow the daily weather impact and seasonal market influences on grain production at stormx.com/agriculture.



On Apr 01 11:41 PM nova wrote:

> "Bottom line: grain prices will require substantial support from
> a weaker dollar and institutional investment to overcome bearish
> fundamentals"
>
> What does it mean?
> Is it good or bad for MON, POT, AGU, MOS and why?

The Dangers of Trying to Trade Weather Headlines

Estimates for corn acreage actually vary even more widely than indicated here. The widely-respected Informa Economics estimate represents the low end at 81 million acres vs. last year's actual 86 million. To put this spread in perspective for corn supplies, these 5 million acres translate to roughly 780 million bushels (assuming a trend yield of 156 bu/acre), or nearly 6.5% of total U.S. production for 2008/09. This "uncertainty" spread will certainly influence corn prices once it is resolved.

You can monitor weather's impact on grain production every day at www.stormx.com/agricul.../.

Five Reasons to Invest in Agriculture

One reason that the DBA has underperformed the USO or GLD is simply that the DBA derives its value from four underlying markets: corn, soybeans, wheat, sugar. While the grains will tend to move as a group, grain market fundamentals will always support or weigh on the individual DBA components.

To understand the outlook for DBA and the fertilizer companies beyond simply the inflation play, traders/investors must follow these fundamentals. We cover these issues frequently on Seeking Alpha and StormX:

stormx.com/agricul.../

stormx.com/agricul.../

stormx.com/agricul.../

stormx.com/agricul.../

Potash Continues to Shake off Bad News

The grain trade is expecting corn acres to be flat-to-down from last year's planting, which is bearish for potash sales in the near term. Corn is much more inputs-intensive, and grain planting estimates will heavily influence expectations for fertilizer demand. Tighter supplies will indeed be supportive of potash prices, but demand will likely remain soft for the upcoming season. A significant spike in corn prices relative to soybeans would improve the overall fertilizer demand outlook.