Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Agri-Food Companies Are a Good Contrast with Gold stocks

Commodities / Agricultural Commodities Nov 30, 2009 - 04:43 PM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleOver the Thanksgiving holiday driving I-95 in Florida provided some insight into the state of at least some segments of the U.S. economy. I-95 is the major North-South highway on the East coast of Florida. It runs from Miami to Georgia. Driving it from mile marker 47 to about mile marker 300 provides a fairly complete sample of travel activity in the state. Travel activity in Florida is a reflection of economic activity within the nation.

First, traffic was non existent. Both legs of the round trip were made in record time. More interesting though was the price of gasoline. Normally, the best price on gasoline on my weekly route is in Davie, west of Fort Lauderdale. Tuesday the tank was charged for the trip. On the highway returning home, gasoline was purchased cheaper on the interstate than in Davie. That gasoline on that major highway was cheaper than at home suggests demand for gasoline is extremely weak in Florida. One would also have to conclude that the U.S. economy is far weaker at the grass roots level than government statistics and economists' forecasts suggest.

Travel is discretionary spending, and U.S. travel no longer involves the economic epicenter of the world. That position has been assumed by China, et al. While China will not replace the North America as the largest economy in the world immediately, it will do so at the margin which is what matters. The incremental economic growth of China, et al has been and certainly will exceed the marginal contribution of North America which has been hamstrung by wealth destroying Keynesianism. Past Chinese economic growth has generated higher incomes. Future growth in the economy of China, et al will generated further growth in income. And to make it simple, people with more money in their wallets eat better.

Our first chart this week, above, is of an index of Agri-Food prices relative to the S&P 500. The trend in Agri-Food prices is a visible manifestation of the shift in dominance from supply to demand. These prices represent true economic transactions. In each, someone is buying Agri-Food products from someone selling them. As that picture portrays, the fundamentals for Agri-Food, as measured by prices, seem healthy. The hedge fund induced mania of last year has passed, allowing demand to again dictate prices.

When looking at a chart of the price of an Agri-Food, like rice or corn or cotton, keep in mind that these prices represent true economic transactions. When one buys a share of IBM stock, no meaningful economic activity occurs. Someone takes an old share of IBM from their inventory, selling it to you. That IBM stock is then deposited in your inventory of other old IBM shares.

When someone buys a bushel of corn or a hundredweight of rice, a far different situation occurs. Whoever buys that grain intends for it to be consumed by someone. Grains and meats are not purchased to be put in inventory for a future trade, like IBM stock. Ultimately, that grain or meat or oils will be consumed. They will disappear.

That rising trend for Agri-Food prices, shown in the first chart, is a visual manifestation of rising consumption of Agri-Foods meeting a rather inelastic supply situation. The supply of Agri-Food cannot rise much in the short-term. Agri-Foods are not produced in a factory, but grow in a field generally one time a year. Pictured in that chart are the essential fundamentals of Agri-Food.

In recent years, the supply situation has deteriorated while demand continues to expand. Agri-Food production actually rose in 2008 while prices were pushed higher in the hedge fund induced mania. However, global Agri-Food production likely fell in calendar 2009. Reports to date would also suggest that global Agri-Food production will likely decline in calendar 2010. Agri-Food supply is a far more complex situation than producing consumer electronics.

In our second chart, above, we find that some have already benefitted from the continued positive developments in the Agri-Food sector. Plotted in that chart is an index of a basket of Agri-Food stocks versus the S&P 500. The results need little elaboration.

Strongest components of that basket of Agri-Food stocks have been those companies with exposure to China. You remember China, the nation predicted every month by someone to be on the verge of economic collapse. Well, guess it did not collapse yet. Agri-Food companies in China have experienced a slowing rate of growth, but nothing approaching collapse. The day of this writing another story laying out the case for China's imminent collapse was read, so presumably the situation is secure for the next month.

Not as strong have been those Agri-Food companies based outside of China. Revenues were hurt by the collapse of the hedge fund induced price mania of last year and the Western economic recession. The third calendar quarter likely was the low point for their year-to-year comparisons. That combined with the less strong move in the price of these stocks suggests that Agri-Food companies based outside of China may perform quite nicely in the near future. All should do well, though, over the coming decade.

Agri-Food companies are a good contrast with Gold stocks. Gold mining companies are attempting to deplete their resource base. The goal of mining is to take the Gold out of the ground and sell it. Agri-Food activities are all about maintaining a renewal resource, and profiting each year from the production. Further, developments in China and India suggest that the next decade will be good for the Agri-Food sector as rising demand meets inelastic supply. What happens after the next decade we will worry about later. To begin your exploration of Agri-Food use this link:

The response to the release of 3rd Annual U.S. Agricultural Land As An Investment Portfolio Consideration, 2009 is much appreciated. This work is the definitive annual study of the role of U.S. agricultural land in an investment portfolio. It is a rigorous statistical analysis suitable for the sophisticated investor. The 60 page PDF file is delivered via email, and is available at the following link:

By Ned W Schmidt CFA, CEBS

AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View , a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To receive the most recent issue of this publication, use this link:

Copyright © 2009 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 - 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