Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Stagflation-Proof Yourself with Agriculture Commdodity Investments

Commodities / Agricultural Commodities Oct 04, 2007 - 09:09 AM GMT

By: Michael_Pento

Commodities In addition to monetary inflation, which I wrote about in part one of this series, another well known-driver for the higher prices in agricultural commodities has been the use of corn for the production of ethanol. That increase in the intrinsic value of corn has translated into higher prices for other agricultural commodities because land replanted for the growing of maize means less available for the production of wheat, soybeans, cotton, etc.


Much has been made recently of the increased planting of the corn crop witnessed this year. However, even with the increased production (13.3 billion bushels) demand has kept pace, consuming nearly all the added supply (12.8 billion bushels), and future demand for this commodity looks strong. Today 16% of the current corn crop is used in the production of ethanol; in just two years it will consume 30%, according to USDA estimates.

While the bio-fuel component of the agricultural story has been well promulgated, it is only a part of the story. Another reason for the bull market in agriculture is the growth of GDP on a worldwide basis along with increases in population. Global population should reach 7 billion by 2013 causing demand for grain to increase by 40% by that time. Along with strong population growth is the even more powerful phenomenon of a new middle class being created in emerging economies at a record pace, spurring GDP rates that are projected to rise at twice the historical average for the next ten years. Such wealth creation brings about a consumer who is able to demand a healthier, higher-protein diet, which is straining agricultural commodities producers who have to supply the livestock required to meet that end demand for meat.

The result of these three new dynamics: the conversion of bio-mass into bio-fuels, investment in agriculture as a hedge against inflation and an expanding, more wealthy global population has led to scarce supplies for soft commodities -- rendering stock-to-use-ratios at record lows.

Wheat, for example, is at its lowest inventory level since 1978 -- currently 112 million metric tons, down 46% since 2000! And today's demand for wheat is running at 616 million metric tons while production is estimated at just 606 metric tons for 2007; in fact, demand has outstripped supply for the last 7 years. It's little wonder, then, that prices have doubled in the last 6 months, albeit having been pressed higher recently by weather.

Which leads to what may be the most compelling evidence behind this agriculture story: weather. Or the lack thereof.

Aside from wheat in recent weeks, as mentioned above, this is perhaps the first time in modern history when the steady rise in agricultural prices has not been due to weather -- a crop freeze, drought, flood, etc. -- which is what has always been the driver of past price spikes in soft commodities. No, this rise has been slow and steady, the result of all the demand-side pressures listed above, which means agriculture may be in the early stages of a bull market that ends up looking a lot like the ones other raw materials have witnessed in recent years.

In crafting the Delta Global Agriculture UIT portfolio on which we advise for Claymore Securities, we came to a simple conclusion about how to best participate in a bull market in agriculture: by owning the marginal producers at the source and those companies most closely tied to them, like seed and ag chemical companies. Consumer food companies like Kellogg's (NYSE Symbol: K) are not agriculture stocks, in our opinion, and even the recent severe earnings warning from Tyson (NYSE Symbol: TSN) due to rising feed costs suggests such companies may not quite be in the right place for this trend.

The bullish macroeconomic environment for agriculture is likely still in its early stages. Investors should take heed of the positive changes occurring in this asset class and should look to own specific types of agriculture companies should they decide to participate in this trend.

By Michael Pento
Senior Market Strategist
Delta Global Advisors, Inc.
866-772-1198
mpento@deltaga.com
www.DeltaGlobalAdvisors.com

A 15-year industry veteran whose career began as a trader on the floor of the New York Stock Exchange, Michael Pento served as a Vice President of Investments at Gunn Allen Financial before joining Delta Global. Previously, he managed individual portfolios as a Vice President for First Montauk Securities, where he focused on options management and advanced yield-enhancing strategies to increase portfolio returns. He is also a published theorist in the field of Austrian economics.

Michael Pento 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