Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A Billion Hungry Mouths, China’s Grain Demand Could Explode

Commodities / Agricultural Commodities Oct 25, 2009 - 03:35 AM GMT

By: Sean_Brodrick

Commodities

Best Financial Markets Analysis ArticleWhile most commodities have blasted off, agricultural commodities have lagged the rally. I think that’s going to change in a big way, thanks to a country with a billion hungry mouths and plenty of cash. I’m talking about China. And I have three picks to play China’s growing hunger.


Why has agriculture lagged? It boils down to a couple of factors …

  1. Expectations of bumper crops in the U.S. and other countries.
  2. Fears that the global recession would weigh on demand for meat. Since it takes a lot of grain to feed pigs and cows, that in turn weighed on expectations of grain demand.

But now, with harvest season upon us, those two fears are fading. Weird weather is dragging down harvests in the U.S. and Australia. And signs of recovery in emerging markets like China are ramping up prospects of meat consumption again.

Another factor to consider is the United States is the Saudi Arabia of grain — exporter to the world. As the U.S. dollar slumps lower against other currencies, our grain becomes more affordable for deep-pocketed foreigners. That revs up grain sales … and prices.

And who is going to buy a lot of our agriculture products? China!

Here are some facts on China that are bullish for the long-term trend in prices …

  • China is losing more and more farmland to desertification and urbanization. From 1950 to 1975, China lost an average of 600 square miles of arable land each year. By 2000, the loss of good farmland accelerated to nearly 1,400 square miles. Some of the best farmland has been plowed under to build skyscrapers, and only 28% of China’s remaining farm land is considered high-yielding.
  • China suffers from low yields. For example, China’s corn yields are less than 80 bushels an acre, half the size of U.S. corn farmers’ yields. And China’s farm yields are only growing at 0.9% annually.
  • China has to feed 7.3 times as many people per acre of arable land as the U.S., and three times as many as Europe. And the crisis is worsening because China has 22% of the world’s population and only 7% of its fresh water. What’s more, thanks to pollution, three-quarters of its river water are undrinkable or unfishable. Scientists say the aquifer under China’s northern plain — which produces half of the country’s wheat and a third of its corn — has been dangerously depleted by overpumping.
  • China’s per capita grain demand is rising, especially in cities, and it will build a lot more cities. By 2025, China will have added 350 million urban residents to its population — about the size of the entire population of the U.S. today — and by 2030, should have 221 cities with more than 1 million residents. You can see the trend this is already having on food spending in this chart …

Urban Chinese spend more money on food

Source: UN FAO, UBS

The really interesting thing about this chart is that you can see the Chinese used to spend much more per capita on food. If that ramps up again, China’s food intake could soar.

Bottom line: According to a report from Societe Generale, if China follows the same path as South Korea, whose economy grew at an average rate of 6% between 1965 and 1989, China’s grain consumption would more than double to 812 million metric tonnes over the next 25 years.

Where will this grain come from? China’s grain stockpiles are near 30-year lows …

China Grain Stockpiles

Source: Societe Generale

So that leaves global grain supplies. While two years of bumper harvests have boosted global stockpiles, as measured by months’ worth of inventory, they still are lower than at any time since World War II.

Speaking of the world, it’s not just China that’s hungry. According to a report from the U.N. Food and Agriculture Organization earlier this year, more than 1 billion people across the world are hungry — an increase of 100 million people in just the last year. The difference between China and most of the rest of the world’s hungry people is that China has cash — lots and lots of money that we ship them every day in return for cars, toys, and lead-saturated toothpaste.

What do you suppose China will do if it needs grain? That’s easy — go shopping in Uncle Sam’s pantry.

China’s Grain Demand Could Explode

Going forward, all it will take is one bad harvest to tip China over the edge from low stockpiles to no stockpiles. If that happens, America’s grain prices and farm-related stocks could blast off.

So, China’s booming appetite should be good news for U.S. farm stocks.

Three Ways to Trade This

You can buy individual stocks, and there are some bargains out there. But unless you’re going to do a lot of research, it’s best to stick to funds. Three easy ways to trade the coming move are …

The PowerShares DB Agriculture Fund (DBA) tracks a bunch of agricultural commodities. To comply with CFTC dictates, the DBA recently expanded from its four holdings of corn, wheat, soybeans and sugar. It revised the fund and added Cocoa, Coffee, Cotton, Feeder Cattle, Kansas Wheat, Lean Hogs, and Live Cattle futures to the mix.

The iPath Dow-Jones AIG-Grains ETN (JJG) tracks soybeans, wheat and corn. Be careful, however — there’s not a lot of volume in this one so entries and exits can be tricky.

The Market Vectors Agribusiness ETF (MOO) tracks a basket of agriculture-related companies including Archer Daniels Midland, Monsanto, Potash, Mosaic, Wilmar and more.

Do your own due diligence in anything you buy, and make sure it’s right for your investing style.

Two of the above-mentioned funds are already racking up gains in Red-Hot Commodity ETFs, and I’ll be firing off more picks soon to make the most of the next big surge in prices. If you’re ready to trade, it’s time to climb onboard the profit train before it leaves the station. Check out Red-Hot Commodity ETFs today.

Yours for trading profits,

Sean

P.S. Be sure to check out my blog at http://blogs.uncommonwisdomdaily.com/red-hot-energy-and-gold/ for daily updates and charts on gold, oil, agriculture and more.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

Uncommon Wisdom Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in