Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Agri-Equities Potential for Significant Profit Expansion

Commodities / Agricultural Commodities Oct 02, 2011 - 10:35 AM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleA center of global commerce? Connecting to the global Agri-Food system? Helping to feed Japan, Korea, and China? Why yes, Moses Lake, Washington comes immediately to mind. In the Hay Report from World news services via wenatcheeworld.com we discover, "Moses Lake (Sept 16) -- Tonnage this week: 18,180; last week: 19,555; last year: 14,970." That year-to-year increase for bales of hay sold is 20+%, and might have been higher had supply not been constrained in the U.S.


Discovering that hay was smoking hot we pushed on to "Kittitas Valley hay fetches top dollar in Japan" by E. Lacitus, Seattle Times, 5 September.

"On a recent summer morning, a sales manager from Japan and his assistant were driven to a 1,100-acre hay farm about three miles southeast of town. They had flown into Seattle a few days earlier. At this particular farm, the sales manager, Kenny Miura, of Yoshi International out of Tokyo, went inside a massive barn stacked 20 feet high with bales of timothy hay. Miura pulled some of the hay out of a bale and quickly gave it a grade--in this case, what amounts to about a 'C'."

"To the surprise of many who don't live here, 90 percent of the timothy grown in the valley will never be eaten by an American horse or cow. The closest locals will get to it is when a hay truck goes by, or motorists see stacks covered with vinyl tarps in fields alongside Interstate 90."

"Nearly all of the timothy[hay] from here is shipped by sea to Japan and, in lesser amounts, to countries such as South Korea and China, and also the United Arab Emirates." [Emphasis added.]

A variety of factors have come together to make hay a hot topic in the global Agri-Food export market. High grain prices raise the value of hay as an alternative feed for animals. Global demand for meats means higher demand for feed, both grain and hay.

Interesting aspect of exporting hay to Asia for animal feed is the low food value of hay, relative to grains. What has made hay exports viable is the vast number of container ships bringing cargos to the U.S. from Asia. Normally, many of those containers would return to Asia generally empty. Now, some are filled with hay, distillers' dry grains, and other animal feeds.

All of the above leads to an interesting question. Will consumers be able to afford to eat meat in the future?

While pork and beef prices have risen nicely in the past year, all meat prices are cheap relative to the cost of feed. Either the prices of grains are too high relative to meat prices or meat prices are too low relative to grain prices. In either case, meat producers appear to be poised for a higher level of prosperity, like that being enjoyed by the corn and soybean barons of Iowa.

One of the more under valued of the meats is chicken, as shown in the following chart. In that graph is plotted the ratio of U.S. broiler, table chicken, prices to feed costs. When the ratio is low, broiler prices are too low relative to the cost of feed. Poultry farmers are likely losing money on every chicken they raise. While that might be normal business practice in the fantasy world of social networking sites, it is a situation that cannot persist in Agri-Foods where farmers do not have access to unlimited free money from the Street.

As can be observed in the chart, current ratio of broiler prices to feed costs is below 0.6. As indicated by the situation in 2008, that is an unstable level of prices received to the cost of feed. Most likely direction for the ratio over is time is upward. How much could it rise? Certainly something more than 1.0, and 1.2 is quite possible.

What does that potential imply for chicken prices? Chicken prices should rise by~ 80% relative to feed costs to restore profitability, and some type of equilibrium condition. That leads to another question. What will cause the improvement in chicken prices?

In Agri-Meat markets equilibrium pricing is restored through liquidation of herds, or flocks in the case of chicken. Liquidation is what happens when the pain of losing money becomes too great. Producers simply "throw up their hands", and sell the animals for whatever they can get. That liquidation phase can be observed in prices which spike downward in such a period. That seems to be what is being displayed in the graph below of U.S. broiler prices. Are chicken prices preparing to "double"?

We find the above situation prevalent in all the meat markets. Meat prices need to rise by 50-100% relative to grain prices to restore equilibrium in those markets. Given the pricing situation and continued high demand for meats from Asia, Agri-Equities of those producing meats, from hogs to cattle to chicken, seem to have the potential for a period of significant profit expansion. For those tiring of the situation with the Bernanke bear market rampaging equity values, considering U.S. pasture land as an investment alternative might be reasonable. For help on this latter subject see 5th Annual U.S. Agricultural Land As An Investment Portfolio Consideration - 2011, the definitive work on the U.S. Agri-Land. Obtain it at: www.agrifoodvalueview.com/AgriLandAnnual

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: www.agrifoodvalueview.com.

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt 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