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
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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.

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

© 2005-2022 - 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