Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
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
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Agri-Foods Investments Continue to Soar in Value on Growing Global Demand

Commodities / Agricultural Commodities Dec 09, 2010 - 02:13 AM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleWhile preparing final copy of December issue of The Agri-Food Value View last week we thought that most of the relevant weather news had been covered. Then from down under came news of too much rain. Australia is not somewhere from which we expect to get such news. More often lack of rain is reported. That rain came as some Australian farmers were attempting to harvest the wheat crop. Yes, Australia is on a different weather cycle from Kansas City.

Agri-Food Price Index

Our Agri-Food Price Index had seemed settled down for a long North American Winter nap. Then rose such a clatter in the pits as all turned to the Australian matter. As can be observed in the chart, the index promptly went to a new high on worries over Australian wheat harvest.

Weather of 2010 has just not been cooperative. Russia, Brazil, Midwestern U.S., Canada, etc. have experienced weather other than that needed or expected. In some, too little rain. In others, too much rain. Russian situation seems so dire that rather than export feed grains, the nation may need to import 3 million tons of feed grains. In any event, no Agri-Grain exports are expected from Russia till the second half of 2011.

Weather is important for one very good reason. Agri-Grains are not produced in a factory. Agri-Grain are produced in dirt, most of which must be watered by rains at the correct times of the year. Further, if part of the Australian wheat harvest, for example, has been lost this year, it will not be replaced till this time in 2011.

Weather has been an issue with Agri-Foods since the first berries were plucked from bushes, or nuts harvested and stored in a cave. Just cannot get around it. Plants require dirt, water, nutrients, and the Sun. They are little solar powered producers of Agri-Food.

Is weather the real issue? Or, is some other factor contributing to the importance of ever fluctuating weather? In a world awash in Agri-Grains, aberrations in the weather might have little impact. Unfortunately, the world is not awash in Agri-Grains.

Days of Inventory

Above graph may help us uncover the answer to the above question. From the USDA forecasts of global grain supplies in storage at the end of the coming crop year for the Big Four, corn, soybeans, wheat, and rice, is subtracted estimated minimum pipeline needs. Water will not come out of a pipe unless entire pipe has water in it, and a similar concept applies to the Agri-Grain supply chain.

That remainder of useable stored grains was then compared to total global consumption and the 2007-8 lows for inventory/consumption ratios. Vertical axis is number of days of consumption in storage above those 2007-8 lows that led to high prices of 2008. We use days now as the global Agri-Grain supply system is in such short supply that measuring in months has little meaning.

Usable global corn inventories represent only 4 days more of consumption than was the case during the 2007-8 period when prices spiked upward. Wheat is the good news. World has 22 days more of consumption in storage than at the lows that led to the last major price rise. Let us put those numbers into perspective. Any Agri-Grain producing region does so about every 365 days.

Weather in 2010 probably was only part of the recent move in Agri-Grain prices. If the above portrayed inventories were truly adequate, the weather issues with this year's production would have been a non event. However, the global Agri-Grain situation is approaching inadequate, making non optimal weather in any producing region critically important. In this type environment, Agri-Grain prices can do almost anything, and just might.

USDA Beefy Index

A consequence that follows from higher grain prices is portrayed in the above chart. In it is plotted the USDA index for beef prices, both hanging and boxed. Not shown in the graph is that beef prices did slide dramatically as a result of the global financial crisis. Since then, beef producers have been reducing herds. First round effect of that is lower price as beeves are sold into the market to avoid the costs of feeding them. Once herds are sufficiently culled, prices rise.

As is readily apparent, beef price are near a 90-week high. Prices initially did react to tightening of Chinese monetary policy and recent move to higher grain prices. However, the smaller size of the global herd has meant the price reaction was, one, muted, and, two, short lived. And now we read from Commodity News for Tomorrow, 6 Dec 2010, in "Beef Prices Soar ... for Now,"

"In the past week, prices reached levels not seen since the autumn of 2008, as the global appetite for beef grows and U.S. ranchers stung by the recession scale back their herds."

"The futures contract for live cattle -- animals finished at the feedlot and headed to slaughter -- closed Monday at more than $1.06 pound on the Chicago Mercantile Exchange. Futures on younger cattle, or feeders, which still need to be fattened, hit all-time highs last week."

"Supplies do remain tight. The number of cows[in U.S.], defined as females that have successfully produced at least one calf, is the lowest since 1963. As of July, the latest month for which data are available, the U.S. calf count was estimated at 35.4 million head -- 1.2% lower than the total a year earlier." [Emphasis added.]

"Domestic[U.S,] beef demand has recovered as the U.S. slowly exits the recession and new markets develop in Southeast Asia, Russia and other regions. The U.S. Meat Export Federation, a trade association, projects that beef and beef byproduct exports are heading toward levels not seen since 2003, a record year."

Given the lower animal head counts and pressure from higher grain prices to keep them low, beef prices will continue to rise over time. Yes, there will be bumps and grinds along the way. But, what we are observing here is a global phenomenon, a trend toward higher meat prices. Recently, the UN FAO's index of global meat prices hit an all time high. Your Gold needs to rise in price, otherwise you might not be able to afford to eat beef in the future.

Finally, we must report that a rumor is false. No shortage of Lexus cars has developed at dealers in Iowa this Winter. Seems most of the potential buyers, flush with cash from their corn harvest, are in the warmer regions, enjoying the bargain rents in empty condominiums. Dealers do expect brisk Spring sales when they return.

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 contract Ned or to learn more, use this link:

Copyright © 2010 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