Almost all of the speculative froth has been blown off the agriculture sector in the past 6 months. The long-term picture for food still looks good, with the world population still growing like mad and Asia in a secular upswing (if cyclical trough). Grains are relatively cheap by historical standards (100 years, not 10!), and while much of this is due to technology, I suspect that this century’s productivity gains will pale in comparison to those of the 20th.
The DBA ETF is an easy way to play, with about equal parts corn, wheat, soy and sugar. I’m going to be scaling in on weakness:
Click for larger view. Source: Yahoo! Finance.
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Agriculture is a perfectly good inflation/currency failure hedge, and it benefits from positive fundamentals, unlike many other such plays.
In a depression, grains have a leg up on metals, since even though not much will be built in the next few years, people still need to eat. Furthermore, as governments get more and more reckless with their market interference, they are likely to screw up supply by enacting tariffs, price controls, wars and other nonsense that causes shortages.
Likewise, oil at lower prices will be a great buy. New demand or not, supplies are tight and getting tighter. Peak oil is real — this also has implications for agricultural prices.
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I’m no perma-bull here: I made a 10-bagger on DBA calls last fall-winter and got out before the top. This time I’m not trading, but buying to hold. As in gold, I will welcome lower prices in the next few months.
Thank you, thank you, thank you for everything you have written this last 6 weeks.
You’re welcome.
Mike,
Great site, thanks for the perspective. Could you point me to any resources on the population increases and supply constraints you mention? I’m new to investing and finding information on soft commodities seems more difficult than on the (precious)metals. Without actually knowing those supply/demand numbers, it seems like your case for increasing grain prices is basically that the prices have gone down for a while, now they have to go up. That doesn’t seem that convincing to me.
I would suggest that his case for increasing grain prices is the perfect storm of constant, global population growth; additional demands on arable land (alternate fuels, etc); loss of arable land due to urban/suburban expansion; loss of arable land and/or reduced yields due to intense (and in many nations, poorly managed) agricultural practices; and finally, the dependence of high-yield agriculture on fertilizers that are themselves products of petroleum.
I agree with him that peak oil is a reality. It will be interesting to see how all these third-worlders who can’t learn how to put a damn condom on will feed themselves and their dirty brood once crop yields start dropping due to unaffordable fertilizers. And no, they’re not going to get much assistance from the first-world (to the extent that it will even exist in the near future). We’ll have enough problems of our own. One can see all of these things playing out in the news. It’s just a question of connecting the dots and realizing that humanity is imperfect and that the creations of man reflect that imperfection. Thus the notion of the perfectability of human society and the ever-upward progression of man is a myth, built upon the amazing resource that WAS fossil fuels.
Kind regards,
Brian
I would also add that it’s not just crops and livestock (land-based food resources) that will be impacted. Fishing and aquaculture will as well. Fish stocks around the world are collapsing. This is why even in the US people are being introduced to more exotic table fare all the time. Remember the Chilean Sea Bass (aka Patagonian Toothfish)? Ever wonder why the heck we started eating that? It’s because fish that were closer to home – like the codfish stocks that once made New England the home of American fishing – have collapsed to below replacement levels. Of course one should ask what the poor people in Patagonia are eating now (since we’re eating their local fish now). This is precisely what is happening off Somalia too. These pirates are all fishermen with no fish to catch – because industrialized nations are sweeping the seas clean of anything vaguely edible.
It also bears mentioning that fishing is a fuel-intensive operation – even more so as near-shore stocks are depleted. The old New England schooners couldn’t make it to Somalia and back with anything remotely edible. As fuel costs skyrocket, it’ll be interesting (to say the least) what all of the aquaculture-reliant nations are going to do to keep from starving…assuming that there will even be fish stocks they can catch, no matter how far they have to sail to catch them.
Kind regards,
Brian
Well said. We’re going backward from investing in enterprises to speculating in stuff that people need to stay alive. I’ll be willing to invest in Asian enterprise once the price is right, though.
Jim Rogers is very bullish on agriculture. What’s your take on this sector? How does an individual investor get exposure into agriculture. What’s your take on Cresud, they apparently one over 1.1 million acres of the most fertile soil on earth with an estimated value of < 300$ per acre!