Aerorick

Are Speculators Driving the Agriculture Market?

No more so than "speculators" - as opposed to real demand outstripping supply - have elevated oil these past several years. With the same said regarding the recent iron ore price hikes accepted by Asian steel producers, and grain price hikes by food producers. Global growth, commoditizing IT and rampant Internet adoption are fueling an integrated global economy, producing unforecast demand for basic industries and services underinvested in by the developed world. This results in positive pricing power, expanding profit margins and financial in-flows to redress the imbalances. Much as office and factory automation propelled Silicon Valley in the 70s, 80s and 90s, a favorable terms of trade has swung violently in favor of resource and industrial producers enjoying the the fruits of technologic re-engineering, able to compete while expanding returns. Yet, many of these shares remain priced as cyclicals, or at best growth cyclicals, where history warrants a more secular perspective. Recall the 1990-1991 1x or lower price/sales ratios of many US semiconductor stocks, which by the 2000 peak had in many cases reached low-mid teens.