Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
4% US 10-year Treasury Note Yield Will Be a Floor Not a Ceiling - 20th Feb 18
Governments Are LYING about Their Gold Activities while Mining Companies Cower - 20th Feb 18
No Silver Lining Here - 20th Feb 18
Semi Conductor Stocks SEMI Bearish? - 20th Feb 18
The Prisoner Promised Land - 20th Feb 18
Best Car Dash Cam Review: Z-Edge S3 Dual Dash Cam - UNBOXING (1) - 20th Feb 18
How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums - 19th Feb 18
Could Stellar Lumens be a Challenger to Bitcoin for International Payments? - 19th Feb 18
US-China Trade War Escalates As Further Measures Are Taken - 19th Feb 18
How To Trade Gold Stocks with Momentum - 19th Feb 18
Is a New Gold Bull Market on the Horizon? - 19th Feb 18
Stock Market Decision Point! - 19th Feb 18
An Inflation Indicator to Watch, Part 1 - 18th Feb 18
Get on Top Of Debt Before It Gets on Top of You - 18th Feb 18
Will the Stock Market Make a Double Bottom? - 18th Feb 18
5 Reasons Why Commodities Are the Investment Place to be in 2018 - 18th Feb 18
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Agricultural Stocks: Fatten Up Your Portfolio on Food Price Inflation

Companies / Agricultural Commodities Apr 19, 2012 - 10:08 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDon Miller writes: For most Americans, the cost of food hasn't always been such a big deal.

For the better part of the last 30 years, food supplies were plentiful and the economy provided enough wealth to keep cupboards stocked.


But my how things have changed since the financial meltdown of 2008. Today, food inflation has more people concerned about the cost of groceries -- and how they're going to pay for them.

Yet for investors, the same food price inflation dilemma presents an investment opportunity that is ripe for the picking.

With that in mind, agricultural stocks are where to look for the low-hanging fruit as food prices keep heading higher.

Food Price Inflation is Good News for Agricultural Stocks
The average annual increase for grocery prices between 1990 and 2011 was a reasonable 2.8%. But since 2005, the International Monetary Fund's food price index has increased by 90%.

Meanwhile, the implied volatility for the most important traded commodities such as wheat, corn and soybeans is up by more than half.

All of this began in 2008. Food price inflation really began to take off when commodity prices soared and home prices plunged.
A combination of factors added fuel to the fire including converting corn and other food stuffs
into ethanol, a growing middle class in emerging countries like China, and a jump in oil prices.

What's more, food prices surged again last year on the heels of a drought, a wheat export ban in Russia, and bad weather in Argentina and Australia.

Since then things haven't gotten much better.

The latest USDA commodity price forecast predicts 2012 beef and chicken prices will increase by 9% and 5%, respectively. That comes after many food items posted double-digit increases in 2011.

It is no wonder people are struggling.

Food Price Inflation Hits a Tipping Point
Up until now, food price inflation has been held in check by producers and manufacturers afraid they might lose business by passing on cost increases to retailers and consumers.

While large multinationals such as Unilever (NYSE: UL) and Nestlé SA (PINK: NSRGY) have been absorbing the extra costs through cost cutting and productivity gains, smaller and midsized producers have struggled.

But all that may be changing...and fast.

A global survey by Grant Thornton shows that mid and small manufacturers who have been squeezed by higher costs for seeds, fertilizers and other supplies plan to charge retailers more over the next 12 months.

The survey, which covered 11,000 businesses across 39 economies, found that 41% of food and beverage businesses expect to increase prices in 2012, compared with just 12% a year ago.

In short, producers are now willing to push higher prices for raw goods on to retailers where the consumer will pay more.

"There are scenarios throughout North America and elsewhere where these players are now going to retailers and saying: "We have absorbed too much here and prices have to go up,'" Jim Menzies, global food and beverage industry leader at Grant Thornton Food, told The FT.

Agricultural Stocks Poised to Gain
As the planet's population explodes, the amount of arable land available for planting isn't able to keep pace. Over the past 50 years, grain production has doubled while arable land use has increased only 9%.
That means spending to boost agricultural yield is the most viable way to increase production and keep prices from soaring.

But while a short-term boost in food price inflation hurts, humans have used their imagination to come up with long-term solutions to many tough problems.

"Human ingenuity has a good track record of overcoming nature's constraints so far. A commodity bull market is really just a bottleneck, and, as a species, we've succeeded in bottleneck removal," Société Générale strategist Dylan Grice told MSN Money.

Investors should focus attention on low-cost commodity producers and the equipment providers that supply them, he said.
Here's how.

Governments around the globe and regional communities will have to spend big bucks to improve crop yields. And that means big profits for companies like Deere & Co. (NYSE: DE) and Agrium Inc. (NYSE: AGU).

Fertilizer prices also have nowhere to go but up and that bodes well forCF Industries Holdings Inc. (NYSE: CF). The company is trading at just eight times earnings, despite sales growth of over 50% the last two years.

Another good way to gain exposure to the big trend is the Market Vectors Agribusiness (NYSE: MOO) and Global X Fertilizers/Potash (NYSEArca: SOIL) ETFs.

Finally, you might consider the SouthernSun Small Cap Fund (MUTF: SSSFX).
According to Bloomberg Markets, the $300 million fund, whose largest investments are in agriculture and construction equipment companies, returned an average of 41.1% per year for the three years ended on Feb. 17.

Either way, one way to ease the pain of food price inflation is by investing in agricultural stocks.

Unfortunately, food prices aren't going lower anytime soon.

Source :http://moneymorning.com/2012/04/19/agricultural-stocks-fatten-up-your-portfolio-on-food-price-inflation/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 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