Sunday, February 17, 2008

Agricultural, it's all about the diet ...

Agricultural-related investments remains one of the big, visible, themes going forward over the next ten years. While there's been some mainstream acknowledgement of these major food issues going forward, for the most part, the media has been relatively quiet about the food inflation.

Maybe that's because many countries focus on "core" inflation, which ignores volatile changes in energy and food. These, especially food pricing, are likely to continue to ramp upwards over the next five to ten years.

Feeding the world continues to develop into one of the biggest stories of this century. The supply and demand curves for food, especially due to changing diets in the Far East to have more dairy and meat, continues to favour higher prices for these commodities. Other drivers of agricultural prices are:

- Strong population growth, expected to reach 7 billion by 2013;

    - Rising income in developed markets and increased demand for soft commodities in developing markets;

    - Climate changes challenging agricultural production processes and product quality;

    - Arable land per person is decreasing;

    - Demand for agricultural products from Bio-energy (sustainable energy resources) market adds an important and competitive new demand source. Agricultural commodities are getting
    more and more important for energy generation.

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    This is something I have written about here (provides some specific suggestions, which I continue to support) and here. I re-iterate those calls to make agriculture-related an important part of your portfolio. In Canada, you can now also consider a recent Claymore Investments ETF product, COW, which invests in agricultural companies.

    Despite recent run-ups in prices of companies serving the agricultural sector, and the underlying commodities themselves, I consider that this investment theme is still just early in the third inning of a ballgame; a ballgame that itself may even go into lengthy overtime.


    The Confused Capitalist


    David said...

    You are correct.Agriculture is one sector that has been overlooked by many including me. I am stunned by the run up of some stocks like AGU from low 20s to over 70s now.

    Worldwide demand for food products is growing.Recently the demand for Palm-Oil from China and India drove Palm-Oil companies in Malaysian thru the roof. Palm-Oil is a substitute for vegetable oil in cooking.


    Abby said...

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    Dirt Farmer said...

    Wow, I am impressed that some one else sees the whole picture when it comes to rising food cost. I am a producer and never hear the end of how fat I am getting b/c of the new ethanol industry where as truth be told right here in your blog.

    Also, if running out of food worries you, we should be praying for global warming, if you believe in it. The higher temps will allow producers around the world to have higher yields due to more heat units in the growing season. So three cheers for global warming and everybody start your engines!

    Jay Walker said...

    Dirt Farmer,

    While I appreciate the accolades, and acknowledge the thermal heat unit issue, it's hard to cheer for something that many experts have acknowledged as problematic for humanity.

    At the very least, we should be cautious in cheering for something that hasn't formed the historical basis (i.e. stable and cooler climate) for the spectacular rise of humanity. If not simply because of the unknown, and the great difficultly in reversing course, global warming should be viewed as a "positive" very skeptically indeed.

    Jay Walker
    The Confused Capitalist