Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Ignore Yellen and Buy the Dip in Precious Metals - 27th Aug 16
SPX Downtrend Should be Underway - 27th Aug 16
Unraveling the Secular Economic Stagnation Story - 27th Aug 16
The Precious Metals Sector and the Fed. . . - 27th Aug 16
Stock Market - All Is Calm, All Is Not Right - 27th Aug 16
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

Food Is Fuel, Rising Food and Energy Costs Triggering Uprisings

Commodities / Agricultural Commodities Mar 16, 2011 - 02:14 AM GMT

By: The_Energy_Report

Commodities

Best Financial Markets Analysis ArticleHow is the bowl of Wheaties you ate this morning linked to a barrel of oil? In this exclusive interview with The Energy Report, Bob Moriarty, founder of 321energy.com, explains why the cost of producing food is directly correlated to fuel and picks which companies are poised to benefit from the rising value of potash.

The Energy Report: You wrote that "the uprising in Egypt began as a protest against the rapidly rising cost of food and energy." You went on to say that "it seems obvious that food and fuel are the same thing under a different cloak. Energy is food is population." Can you elaborate?


Bob Moriarty: Anyone who wants to verify this should search Google for a chart of population growth compared to oil production. The two are identical from about 1850 on. Here's why: it takes so many calories of fuel to produce so many calories of food. It's direct, linear and absolute. If the price of fuel doubles tomorrow, how much more or less driving would you do?

TER: Less, but I would still have to drive. I could not eliminate it.

BM: Would you eat more food or less food?

TER: I could eat less given the price.

BM: Everyone else in the world feels the same way. The majority of people in the world survive on $2 worth of food each day. But how do you eat less when you are on the edge of starvation in the beginning? There has been a 70% increase in the price of wheat since June. That's catastrophic.

I believe that peak oil, or the peak of oil production, occurred back in 2005 or 2006. Peak oil means peak food, which means peak population. We're going to consume less fuel per capita 20 years from now because there's simply no alternative. In turn, that means the population is going to decrease. It could decrease through starvation, disease, war or all three.

TER: In the same article, you said there are other ways that people might be able to produce more food with the same amount of fuel. Besides decreases in population, another outcome could be that less oil would drive more innovation in food production.

BM: That's the real point of the article—there are things that people can do. Potash is used to make fertilizer. As food gets more valuable, potash gets more valuable. It's not necessarily that you're more efficient in the production of food. If the price of wheat doubles, farmers can afford twice as much potash. It's not necessarily more efficient; it's just cheaper in relative terms.

TER: Besides wheat, other food commodities have recently increased dramatically in price. Potash has already risen quite a bit in cost. Looking forward, is there still a lot of upside for potash as a fertilizer component?

BM: Absolutely, because the price of food is going to go higher and higher. Potash is around $600/ton now, but it could be $1,500/ton based on the cost of food today.

TER: If the price of potash increases, do you anticipate that more juniors and explorers will be exploring for potash?

BM: That's the way supply and demand is supposed to work. When uranium went from $8/lb. to $136/lb., there were 450 companies out there exploring for it. Now that doesn't mean they'll be successful.

TER: You were a very early investor in Passport Potash Inc. (TSX.V:PPI, OTCQX:PPRTF). But, ironically, you sold your Amazon Mining (TSX.V:AMZ) shares after the company abandoned gold-mining plans for potash.

BM: Amazon had a gold project in the Amazon. I was hoping the company would get into production. Shares at the time were around $0.09. The company made the decision to go into potash. Potash was not particularly popular then, and I thought they were making a mistake. I wanted to see them advance the gold project and get it into production. So, I sold all my shares. Well, everybody in the universe discovered potash at the same time. Amazon Potash is an $8 stock now. I should've hung on to the stock. That was a very expensive mistake on my part.

TER: What about Passport changed your mind about potash?

BM: Someone presented the Passport story to me about two-and-a-half years ago. It had a big land position in Holbrook Basin, Arizona. I bought into it. Potash was about $900/ton back then. The stock went up to around $0.22.

The company came to a point at which it had squandered all its money. Fortunately, the company found a deep-pockets investor. The investor thought that it sounded like a pretty easy deal, and asked what the company needed to succeed. They said, "We need a check for $750,000 right now so we can go drill." They did drill and it was successful. The investor was buying shares at a nickel each. The stock was around $1 two weeks ago. He made a ton of money in it.

TER: What do you see in the future for Passport?

BM: The company has a strong management team. More importantly, it has access to capital as never before. It has a serious investor, who is prepared to put more money into it. As long as Passport keeps succeeding, he's going to keep throwing money at it.

TER: How much more upside is there?

BM: Several dollars a share. This could be a $1 billion company in two to three years.

TER: It sounds like we could be heading into a potash bubble.

BM: Most companies are going to fail. You have to be counter-cyclical. Potash was way too cheap. Companies couldn't afford to mine it profitably, and now it will overshoot in the other direction. I hope there is a bubble. That will be a tremendous opportunity to get out at a giant profit. We're not at the top for potash, but everything goes up and everything goes down.

TER: For investors who want to capitalize on potash, what companies represent good assets in the ground and viable long-term prospects?

BM: Western Potash Corp. (TSX.V:WPX) has been around for years, but it just keeps moving forward. Its stock has gone from $0.36 in August to $1.80 this year.

TER: What caused it to go up fourfold since August?

BM: The second round of quantitative easing by the Fed, QE2. When they announce QE3, you better head for your bunker.

TER: If QE2 is what's lifting these equities, why wouldn't we expect the same from the third round for these strategic commodities?

BM: If you keep blowing into a balloon, sooner or later, it's going to pop. As bad as QE1 was, I was staggered when Fed chairman Ben Bernanke came up with QE2. We've got riots all over the world including in Wisconsin, and he's sitting there saying it doesn't have anything to do with him. Well, it has everything to do with him.

There is room for maybe 10 rare earth producers. There's room for maybe five graphite producers. There's room for 500 gold and silver producers. But there's room for every company that wants to produce potash. There are a lot of people who don't believe in gold, silver, rare earths or graphite, but they all eat.

TER: You mentioned graphite. Is that going to be one of the metals to watch?

BM: I'm trying to put together a deal right now on a project in Quebec that would be the best graphite company in the world. About 90% of the graphite in the world comes out of China. Graphite, or carbon fiber, is more prevalent in a lithium battery than lithium. While there are probably about 100 companies that claim to focus on lithium, there are only three or four companies that claim to focus on graphite. Graphite is a commodity with enormous potential. However, it's got marketing issues. The reason for that is something called Say's Law, which says that supply creates demand. We could use a lot more graphite. We need to be using a lot more graphite.

People in the mining business don't know how to sell. They worry about resources, but they don't think about the end product.

TER: If the mining industry was better able to understand the broad base usage for graphite, could they create exponential demand for the product?

BM: Correct. The total demand worldwide for graphite right now is 1 million tons per year. Think about it: 1 million tons per year for an iron or coal producer is chump change.

TER: Given some of uses for graphite, such as creating lighter cars and planes, wouldn't the engineers of those products be clamoring to find the graphite?

BM: They know they need it, but they don't go out and say, "Let's go mine some graphite!" They just pay more money for it. Graphite costs about $20,000/ton at the wholesale level.

TER: In a recent article on 321Energy.com, you made an observation that "there are over 75 new reactors being planned in China, India and Russia. Peak oil is both real and past. We need nuclear power, and the rest of the world understands that, and is preparing for $200 oil." This echoes statements that were made in 2007 before the uranium boom busted. What's different now?

BM: If a commodity goes from $8/lb. to $136/lb., you should not be looking for it to go to $250/lb. You should be looking for it to go to $30/lb. No commodity goes straight up and no commodity goes straight down. Corrections are important. Uranium has had its correction and now it's moving higher. It's around $63 a pound right now and no one cares.

TER: How has the situation in Japan impacted the nuclear sector?

BM: Japan does things right. What happened in Japan was a 10 sigma event and could not be foreseen. It literally comes under the "Stuff Happens" rule, but it's going to pretty much wipe out the ability for uranium juniors to raise money for years. Underfunded juniors in the uranium field better go find a real job.

That said, we still need nuclear and we still need uranium to feed existing plants. Regulators will be far stiffer in permitting, but there is no viable alternative to nuclear. Solar power and wind power are 3% solutions and that's all they will ever be. Carbon-based energy just got a lot more valuable. This is going to set nuclear back for years.

TER: What uranium companies are you looking at now?

BM: American Energy Fields Inc. (OTCBB:AEFI) in Phoenix is doing some pretty good stuff. The company wants to get into production on past-production mines. I believe it has a resource at about 30 million pounds right now. The company shares management with Passport, as well as its deep-pocket investor. The two companies are run out of the same office.

TER: Is American Energy's uranium play more interesting to you because of the Passport connection? Or would it stand on its own if it had a different management team?

BM: I was familiar with the company six months ago. I went out to see it about a month ago, and management started going over how many projects they have and how close they were to production. I said, "Holy cow!" These guys have been a big secret. Nobody's heard anything about them.

We do some pretty unusual things. We will go to management and tell them they have to improve their website, for example. I don't know anybody else who has the gall to do that. I told them I wouldn't write a piece about them until they changed their website. So, they did it.

TER: Does that management team run any other companies besides American Fields and Passport?

BM: They're putting together some rare-earth deals and a gold deal, but they're still tentative.

TER: Bob, I appreciate your time.

Convinced that gold and silver were at a bottom, and wanting to give others a foundation for investing in resource stocks, Bob and Barb Moriarty brought 321gold.com to the Internet almost 10 years ago, and later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on the current events affecting both sectors. Before his Internet career, Moriarty was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. A captain at age 22, he was one of the most highly decorated pilots in the war and the youngest naval aviator in Vietnam. He holds 14 international aviation records, and once flew an airplane through the Eiffel Tower's pillars "just for fun."

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.
DISCLOSURE:
1) Brian Sylvester and Karen Roche of The Energy Report conducted this interview. They personally and/or their families own shares of the companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: None.
3) Greg Gordon: See Morgan Stanley disclosure that follows.*

*The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. Incorporated, and/or Morgan Stanley C.T.V.M. S.A. As used in this disclosure section, "Morgan Stanley" includes Morgan Stanley & Co. Incorporated, Morgan Stanley C.T.V.M. S.A. and their affiliates as necessary.

For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA.

The ENERGY Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The ENERGY Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.


© 2005-2016 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

Catching a Falling Financial Knife