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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Agri-Food Trends, Volcano Disappoints and Greece Fades

Commodities / Agricultural Commodities May 28, 2010 - 08:05 AM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleWhile still having hopes for the Icelandic volcano, we must accept for now the disappointing reality that a great calamity will not be generated by this hot little mountain. Maybe next time it will better serve our inner desire for something meaningful. Greece is fading and the volcano disappoints. Oh well, maybe next month.

As we have written many times, commodities is not a homogenous asset class. Commodities is really comprised of three sectors. One is energy, which includes petroleum, natural gas, coal, etc. Second would be mineral ores, such as Gold, iron ore, copper, etc. Thirdly, we have Agri-Foods, consisting of corn, soybeans, rice, etc. Each of these commodity sectors have fundamental drivers that are unique.

Gold, for example, is driven out of the reality that Keynesian economics will ultimately destroy wealth through excessive creation of debt. That view is so widely accepted at the present time that $Gold has been driven to perhaps an untenable level. Investing in Gold has been converted to main stream, and is now the talk of main street.

Agri-Food fundamentals are the combination of a growing global population and an expanding middle class today in China and tomorrow in India. As China's middle class has expanded so has their spending on all those things that the middle class buys, including food for a better diet. China's middle class is becoming so normal that Amway generates $3 billion of its $8.4 billion of sales in that country, per Bloomberg Businessweek, 19 April 2010

As our first chart, above, portrays, $Gold performing better than Agri-Food commodity prices, as has recently been the case, is not the norm. For much of the period shown in that graph, Agri-Food commodity prices performed better. Two reasons exist for that. First, Agri-Food commodities are in much of the world priced in dollars. As the dollar depreciated in value and expectations on the value of the dollar declined, Agri-Food commodity prices also rose. Second, Agri-Food commodities are a more direct means of participating in China economic growth while Gold does so only tangentially. For example, China is the world's largest importer of soybeans, largest consumer of pork, and is now a net importer of corn. Finally, note on that graph that the Agri-Food Price Index seems poised to perhaps break though important resistance.

In above chart is plotted Agri-Food Price Index along with a stochastic oscillator for that measure. Agri-Food prices have been in a lateral, or rolling, correction for several months. That has allowed the oscillator to move into over sold territory. It is now given a buy signal, which may be an indication that price index is about to move through resistance line drawn into the chart.

At the same time as the above developments, the Agri-Food stocks have been consolidating and moving toward over sold. They too may develop a stochastic buy signal this Summer. Given the generally superior return characteristics of Agri-Food and the extremely positive fundamentals, investors should now being doing their research. June could be an important time to, as they say, to "come up to speed" on Agri-Food. To gain understanding, a review of our quarterly report, Agri-Food Commodities: An Investment Alternative,is recommended.

You may read that report at this 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 © 2010 Ned W. Schmidt - All Rights Reserved

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