Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Agri-Food Companies Are a Good Contrast with Gold stocks

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

By: Ned_W_Schmidt

Commodities

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: http://home.att.net/~nwschmidt/Order_AgriValueRECENT.html

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: http://home.att.net/~nwschmidt/OrderAgriLand2009.html

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: http://home.att.net/~nwschmidt/Order_AgriValue.html

Copyright © 2009 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 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

6 Critical Money Making Rules