Stocks: Agriculture as an alternative to PM investments in an inflationary environment

[swissaustrian]

Probably most of us are heavily invested in physical pm´s and some mining shares.
So we´re doing well already
But maybe there are even better investments? At least a little diversification isn´t a bad thing.
At this stage of the inflationary collapse, food still only accounts for about 10% of the average household expenditure in the industrialized world. This is going to change dramatically. As long as central banks print money like there is no tommorow, food expenditures relative to total household expenditures only will rise. Population growth and extreme weather phenomenons will support prices of agricultural commodities as well.
If you want an example of an extreme rise in food prices, take a look at the german hyperinflation. The best book to research this is:
Constantino Bresciani Turroni - The Economics of Inflation
Full PDF here (20 MB): http://mises.org/books/economicsofinflation.pdf

Bresciani Turroni describes brilliantly how Germans needed to use more and more of their income for food. I bet you all my pm´s that history is going to repeat itself, but this time on a much larger scale.

Take make a long story short: I invest in agricultural commodities as well as farming, seed and fertilizer companies as a diversification from my pm holdings.
[For my personal food safety i´m growing stuff in my own garden. Additionally i´m storing some durable food.]
Agriculture related stocks got hammered during the last days. Given the inflationary prospects, this is unjustified. I´m going to buy some of them. Right now i´m doing my research. I´ll take those that don´t rely on subsidies.

What do you think? Is agriculture a good investment right now?

PS: 5 Trillion Marks Note:

 

[Seraphim]

It's a moral travesty!!!!


lol...not..

 

[The Grinning Maniac]

I'm planning on looking into it after I open a scottrade (or something similar) account. Seems like a reasonable move.

 

[efiniti]

Depends. If you're putting money in the stock market buying a corporation like ConAgra then you're just fighting a software algorithm. Plus, you're investing in food that's garbage. Remember how ConAgra had to recall their peanut butter due to salmonella poisoning?!

People want quality and if the dollar does inflate they're not going to mind paying a little extra for the good stuff. Locally grown produce that doesn't need to be shipped hundreds of miles cuts costs in transportation and gas. I'm not exactly sure how to invest like that, but that's where I'd put my money.

 

[YumYum]

Corn is King!

Massive Heat Wave Could Cause Corn Prices To Pop

http://www.npr.org/2011/08/05/138618976/massive-heat-wave-could-cause-corn-prices-to-pop

 

[swissaustrian]

Depends. If you're putting money in the stock market buying a corporation like ConAgra then you're just fighting a software algorithm. Plus, you're investing in food that's garbage. Remember how ConAgra had to recall their peanut butter due to salmonella poisoning?!

People want quality and if the dollar does inflate they're not going to mind paying a little extra for the good stuff. Locally grown produce that doesn't need to be shipped hundreds of miles cuts costs in transportation and gas. I'm not exactly sure how to invest like that, but that's where I'd put my money.

Offer a local farmer a loan that he can pay back in agricultural goods?

 

[Brian4Liberty]

Morally wrong. Sorry, I am not a computerized trading machine.

 

[Seraphim]

Excellent idea when done with the right trading partner.

Offer a local farmer a loan that he can pay back in agricultural goods?

 

[swissaustrian]

I wasn´t the first to come up with this idea as i see now:

Jim Rogers: Stop Buying Gold; Buy Agriculture Stocks
...
Rogers has stopped buying gold now. "I wouldn't buy more gold and silver right now" "I don't like to jump on a moving bus". That doesn't mean Rogers is selling, he still believes that "gold is certainly going to go to $2,000 over the years; it looks like it's going to go much higher during the course of the bull market.". Even after soaring to an all-time high of $1678.25 on August 4th, 2011, Rogers thinks "gold prices are not in a bubble because not everyone is buying yet". Right now Rogers is moving towards a greater commodity opportunity that he thinks offers the same kind of values that gold and silver did a decade ago.
Agriculture: The Next Big Bull Market
Consistent with his devotion to buying undervalued assets, he now sees the same quality of values in agriculture that he saw in gold and silver. No, he's not selling his gold and silver, but he is predicting that:
Agriculture prices are still, on a historic basis, extremely depressed, and in my view I'll probably make more money in agriculture than other things.
Rogers thinks that the current commodities supercycle will last for 20 to 25 years, a view supported by the research of Chris Watling of Longview Economics. Whatling traced secular bull cycles back to 1750 and identified that commodity super cycles last 20 to 25 years. As this commodity bull started in 2000, if Whatling and Rogers are correct, this bull will run higher until 2020-2025.
It's about demand and low historical prices. Rogers said:
If the fundamentals weren't right the price would not go up. Many people invested in commodities in the 1980s and 90s and didn't make any money because the fundamentals were bad, now people are investing and making money because the fundamentals are good.
There is a powerful underlying demand for food. When food prices surged in 2007 millions went hungry, and there were riots from Egypt to Haiti and Cameroon to Bangladesh. Rioting calmed down in 2008 when prices dropped, but starting at the beginning of 2009 they’ve been going up and Rogers expects "more turmoil, but I didn't expect it to happen this quickly because food prices are somewhat depressed". Clearly a bull market rise from current levels will cause even more starvation, riots and urgent demand.
On the longer term chart, real food prices were more expensive in 1917 than they are here today. Demand is there. Agriculture will be "wildly exciting" as global food shortages worsen, according to Rogers. "You pick an agriculture product and I'll say buy it," he said. Shortages are showing up right now as the world population has more than doubled from 3 billion in 1960 while the amount of arable farmland has been decreasing. If the world population rises from its current 6.8 billion to 9.1 billion by 2050 as the United Nations forecasts, a lot of people are going to be scrambling for food.

http://seekingalpha.com/article/285115-jim-rogers-stop-buying-gold-buy-agriculture-stocks

Watch the interview with Jim Rogers here:
http://jimrogers1.blogspot.com/2011/08/jim-rogers-i-am-long-commodities.html

 

[efiniti]

Offer a local farmer a loan that he can pay back in agricultural goods?

That's one way to go. I haven't put any funds in my lendingclub account so I can't see if there's any local farmers there, but that's another possibility.

 

[Brian4Liberty]

I wasn´t the first to come up with this idea as i see now:

Lol! If that article doesn't define immorality then nothing does.

 

[swissaustrian]

Lol! If that article doesn't define immorality then nothing does.

Yep. It´s surely a moral dilemma.
But if you look at mining companies you´ll see that they aren´t angels too. People die in mines, the environment gets heavily polluted etc.
All inflation related investments are somehow morally questionable because they are a bet on bad times.
I think helping the local community by selling food at "fair" prices and at the time investing in some agricultural stocks could be an acceptable compromise?

 

[Brian4Liberty]

Yep. It´s surely a moral dilemma.
But if you look at mining companies you´ll see that they aren´t angels too. People die in mines, the environment gets heavily polluted etc.
All inflation related investments are somehow morally questionable because they are a bet on bad times.
I think helping the local community by selling food at "fair" prices and at the time investing in some agricultural stocks could be an acceptable compromise?

Yeah, it would be nice to easily tell how "moral" specific mining companies are before investing (pollution, working conditions, safety, etc). At least they only cause localized damage, as opposed to worldwide starvation and food price inflation for the poorest people around the world.

 

[Brian4Liberty]

I think helping the local community by selling food at "fair" prices and at the time investing in some agricultural stocks could be an acceptable compromise?

I fully support small, local farmers, and businesses that actually participate in the food chain. We need more of them. Unfortunately, agriculture specific investment vehicles created on Wall St. (ETFs, Mutual Funds, investment trusts, etc) will no doubt funnel money to the few powerful corporate farmers, who will destroy all small farm competition via buy-outs with your money, or by bringing the government (FDA) down on them.

 

[swissaustrian]

I fully support small, local farmers, and businesses that actually participate in the food chain. We need more of them. Unfortunately, agriculture specific investment vehicles created on Wall St. (ETFs, Mutual Funds, investment trusts, etc) will no doubt funnel money to the few powerful corporate farmers, who will destroy all small farm competition via buy-outs with your money, or by bringing the government (FDA) down on them.

Over here in Europe there are some smaller farming companies listed at stock exchanges. Market cap. ranges from 25 million $ to 300.
But generally speaking: An investment in local farmers probably only works through personal ties or alternative markets for loans, e.g.. websites for microcredits.
Another small investment that is indenpent of wall street would be to buy seeds physically. They can usually be stored for arround 5 years.

 

[Mini-Me]

Yeah, it would be nice to easily tell how "moral" specific mining companies are before investing (pollution, working conditions, safety, etc). At least they only cause localized damage, as opposed to worldwide starvation and food price inflation for the poorest people around the world.

The moral dilemma isn't as one-sided as you suggest though:
If your speculation contributes toward raising the price of food significantly over cost, that increases profits for the agriculture industry. Yes, that does include the corporate behemoths, but there's more to it. The higher any industry's profit margins are, the more attractive it becomes for people to start up companies in that particular industry and take a piece of the pie. No matter the market, the potential profits will eventually rise enough to justify the startup costs. This is the market process that alleviates increased demand with increased supply in the first place, and it MUST occur at some point if we're ever going to meet increasing worldwide food demand with increasing supply. "Overpopulation" in the long term may be a myth, but continued worldwide population growth in the short and medium term is going to guarantee increasing food demand...which raises a need for increasing the supply.

The fact that we don't live in a free market makes this process much slower, because barriers to entry - especially in the agricultural industry - are extremely high and only getting worse. (Think of all the small farms getting shut down.) However, US regulations do not apply everywhere, and increasing the signs of profitability will encourage more people to set up gardens and farms all over the world...before it's too late.

I do agree that where possible, it's much better to support smaller (especially local) farmers. Buying your food from small farms creates more targeted profitability increases, which makes it specifically more profitable to set up small farms in the first place, etc. The only problem is that the investment opportunities become more and more limited when you restrict yourself to smaller farms, especially when you restrict yourself to local family farms. If your area of expertise or interest does not include taking an active part in creating or managing a farm yourself, you can potentially be out of luck. Investing in commodities on the market may not help as much, but I don't think it hurts either, and it still might help a bit in the long run.

 

[billjones]

Probably most of us are heavily invested in physical pm´s and some mining shares.
So we´re doing well already
But maybe there are even better investments? At least a little diversification isn´t a bad thing.
At this stage of the inflationary collapse, food still only accounts for about 10% of the average household expenditure in the industrialized world. This is going to change dramatically. As long as central banks print money like there is no tommorow, food expenditures relative to total household expenditures only will rise. Population growth and extreme weather phenomenons will support prices of agricultural commodities as well.
If you want an example of an extreme rise in food prices, take a look at the german hyperinflation. The best book to research this is:
Constantino Bresciani Turroni - The Economics of Inflation
Full PDF here (20 MB): http://mises.org/books/economicsofinflation.pdf

Bresciani Turroni describes brilliantly how Germans needed to use more and more of their income for food. I bet you all my pm´s that history is going to repeat itself, but this time on a much larger scale.

Take make a long story short: I invest in agricultural commodities as well as farming, seed and fertilizer companies as a diversification from my pm holdings.
[For my personal food safety i´m growing stuff in my own garden. Additionally i´m storing some durable food.]
Agriculture related stocks got hammered during the last days. Given the inflationary prospects, this is unjustified. I´m going to buy some of them. Right now i´m doing my research. I´ll take those that don´t rely on subsidies.

What do you think? Is agriculture a good investment right now?

PS: 5 Trillion Marks Note:

Can you give examples of stocks that don't rely on subsidies?

 

[swissaustrian]

Can you give examples of stocks that don't rely on subsidies?

I don´t know any US company and I´m not involved in the US market for this reason. Take for example Archer Daniels. This is probably one of the most subsidised companies in the world.
But some foreign companies come to mind:
- Olam International, a Singapore based supply chain manager for agricultural commodities. Mainly active in Africa, Asia, and Latin America. Great company, very well managed. Very detailed information for investors on their website.
- Syngenta, Swiss company involved in fertilizers and seeds. Pretty expensive from a valueation viewpoint. Strongly positioned in growth markets like Brazil / Argentina and south east Asia.
- Adeccoagro, Brazilian farming company. Quite risky, though. They went public just a few months ago, so they´re difficult to evalueate. Soros was one of the private equity investors.

Very important: Before you buy anything, do your own research. I think the timing to buy right now is not perfect. We might see another 10% correction or so in stocks.

 

[mosquitobite]

Offer a local farmer a loan that he can pay back in agricultural goods?

Excellent idea when done with the right trading partner.

It's called a CSA (Community Supported Agriculture)

 

[billjones]

I don´t know any US company and I´m not involved in the US market for this reason. Take for example Archer Daniels. This is probably one of the most subsidised companies in the world.
But some foreign companies come to mind:
- Olam International, a Singapore based supply chain manager for agricultural commodities. Mainly active in Africa, Asia, and Latin America. Great company, very well managed. Very detailed information for investors on their website.
- Syngenta, Swiss company involved in fertilizers and seeds. Pretty expensive from a valueation viewpoint. Strongly positioned in growth markets like Brazil / Argentina and south east Asia.
- Adeccoagro, Brazilian farming company. Quite risky, though. They went public just a few months ago, so they´re difficult to evalueate. Soros was one of the private equity investors.

Very important: Before you buy anything, do your own research. I think the timing to buy right now is not perfect. We might see another 10% correction or so in stocks.

SA, what do you think about crude oil?