Both Monetary inflation and demand from developing countries will continue to take food prices higher.
There is very little an investor can do about this besides protect themselves and their net worth and standard of living by investing (hedging) in this trend to offset the food price increases we are all going to feel at the grocery store or restaurant.
We can trade down and substitute as much as we can when food prices continue to go higher, if we are willing to sacrifice our standard of living.
But, we all still have to eat and there are growing food shortages on this planet as crop surpluses year over year continue to lessen.
For those of you looking to protect yourselves and your family from increasing food prices and also profit off of this developing trend, the best way, in my opinion, to invest in the higher food prices trend is to invest in Potash/Fertilizer stocks. Here’s why:
· For almost every single crop that is planted, whether it is corn, soybeans, wheat, sugar, coffee, cotton, oranges, bananas, etc a required input cost for farmers who plant all of these crops is to replace nutrients in the soil with new potash (potassium (KCL)), nitrate or phosphate fertilizers.
· This is because many farmers lack the patience to crop rotate like farming of old to replace nutrients in the soil and because our current agricultural system is based off a system of monoculture.
· What this means to investors is that potash/fertilizers are a required input cost for virtually every farmer of any kind of scale.
· Farmers from countries ranging from the US to China and Brazil can wait at most up to 2 years before putting down more fertilizers.
· China and India are quickly trying to lock in large quantities of 20-30 long term supply contracts. This is partly due to the fact that farmers could run out of phosphate in 2011.
· Things could get worse in terms of food prices and food shortages going forward after 2011 as the world population, which according to National Geographic, just crossed 7 billion heads towards 2050s projected number of 9 billion.
In conclusion, the reason investing in a diversified holding of potash stocks (or hopefully one day a Potash producer ETF if one is ever created) makes so much financial sense is that I don’t have to tell you which crop will outperform others and if I pick a specific crop and pick the wrong one, I’d risk missing the food price increase trend or lag badly.
Until our food and agricultural systems change entirely, and I am all for organic farming, (if it doesn’t involve the slashing and burning of rainforests to make room and I have no idea if it’s even possible for purely organic farming to feed 7 billion people even with the increases in crop yields we currently have compared to 100 yrs ago), I think investing in a diversified holding of Potash stocks are by far the best and safest way to play the increasing food price trend for people who are frustrated with a commodity ETF that doesn’t properly track higher Ag/Soft prices moving higher and for those of us that want to avoid the futures markets because we don’t want to take on debt (margin) to get the leverage to buy one contract.
I’d much rather bet on more of a sure thing and I think Potash being a required input cost for every farmer is much more of a sure thing than trying to pick out winners among wheat, corn, soybeans or rice.
Let Jim Rogers pick out winners among the crops and just stick with potash stocks instead!