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Agri-Foods Representing Rare Value Investment Opportunity

Commodities / Agricultural Commodities Dec 15, 2008 - 04:33 PM GMT

By: Ned_W_Schmidt

Commodities Best Financial Markets Analysis ArticleA funny thing happened on the way to the end of commodity investing for all of time. What was it? Commodity prices bottomed, and started going up. Wow, could the Street strategists possibly be wrong? Is that conceivable? Is not oil at $200 as was forecast? No, that's right, they changed the forecast. Oil is now going to $10 in the Spring. Ignoring the inability of the Street to understand that commodities is really composed of three sectors, one of which is Agri-Food, would probably be wise. The other two are mineral ores, like copper and Gold, and energy, like oil and natural gas.


In our first chart this week is portrayed the percent change from the 52-week lows for the more important Agri-Foods. Before a price advance can develop, that price must move off its lows. With rare exception, that has happened. Could it be possible that the 1.3+ billion Chinese, as well as the other billions of consumers in the world, just might continue to eat? Despite the slow down in the Chinese economy, that country will purchase about $40-60 of additional Agri-Food each year for the foreseeable future.

And never forget, farms are not factories. Global grain production is likely to decline in the coming year. The combination of higher demand and lower supply could be of great benefit to Agri-Food in vestments in the years ahead. And while you are considering the appropriateness of Agri-Food investments, a few more thousand acres of productive land will be lost to the world. The world's water supply available for Agri-Food production and consumers will shrink some more. For unlike the consumer electronics industry, the global food factory gets a little smaller each year.

 “Cookie Cutter Strategists” continue, in determined fashion, to force the near future to fit the 1930s' cookie cutter. This time is different, as it always is. Agri-Food today has to serve the consumption demands of 1.3+ billion Chinese with fattening wallets. Behind them in line is almost another billion Indians anxious for a better diet. That situation in no way fits the 1930s' cookie cutter.

All investments seem to have been battered unmercifully during the joyful liquidation of a goodly portion of the hedge fund industry. We might add that we happily await closing of the last hedge fund. Agri-Food investments, however, seem to be shaking off worst of that mess. Our second chart, below, compares the performance for the portfolio of Agri-Food commodities with that of the S&P 500. While it was hurt too, it seems to have bottomed well above that for the general market, and that should ultimately benefit the Agri-Food stocks.

Agri-Food is a rare investment theme. It does not have loan losses. It does not require government money to stay in business. The Chinese government, by policy and actions, wants Chinese consumers to consume more of its products. Instead of worrying about which bank will fall next, whether GM will survive, or if your hedge funds is real and liquid, perhaps doing some investing on your own in Agri-Food might be a good idea.


By Ned W Schmidt CFA, CEBS

Copyright © 2008 Ned W. Schmidt - All Rights Reserved

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 review a recent issue, write to

Ned W Schmidt Archive

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