Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
BREWING FINANCIAL CRISIS 2.0 Suggests RECESSION 2022 - 28th Jan 22
Financial Stocks Sector ETF XLF $37.50 Continues To Present Opportunities - 28th Jan 22
Stock Market Rushing Headlong - 28th Jan 22
The right way to play Climate Change Investing (not green energy stocks) - 28th Jan 22
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Agri-Food Commodity Cycle Stocks Investing

Commodities / Agricultural Commodities Jun 04, 2011 - 11:24 AM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleWhat is the most dangerous word in the investment world? Using this word is almost assuredly first step toward owning an investment with issues that ultimately lead to unhappiness. That word? Quite simply is, "But..." That word can actually take two forms, explicit and implicit.

Consider first The Great Silver Crash of 2011 now unfolding. Quite clearly the Silver bubble has burst, and the basic path of Silver is down. However, many times we heard this past month, "but my chart says..." or "but the longer term moving average..." or "but hyperinflation is..." or "but the dollar is going to vaporize". Some similar "buts" are being heard in Agri-Food. But, "buts" do not change a market's direction.

Agri-Food Price Index

Plotted in the above chart is our Agri-Food Price Index, green line. That red line is the stochastic associated with that index. Two blue rectangles highlight the breakdown of the previous commodity cycle and the current environment. In both cases, the stochastic signaled a breakdown out of the existing pattern. As the great philosopher once said, "Looks a lot like deja vu all over again."

Now, what is a stochastic? That measure attempts to guess where in the existing channel price is trading. The name, stochastic, is derived from "a guess." In the above chart we use the stochastic to identify buy signals. In doing so, we always note that the first stochastic buy signal out of an up move should be ignored as it is really a signal that the pattern is breaking down.

What ignited the Agri-Food commodity price run of the past year was Russia and Ukraine halting export of wheat in the Summer of 2010. Much of the Middle East and parts of Europe rely on wheat from those countries due to generally low cost and short transport. That embargo on exports caught many countries unprepared, as generally that wheat was always available. Just in time inventory management works wonderful, till it does not work at all. Only real wheat shortage was localized, and predominantly in those nations, like Egypt, that rely on Russian wheat.

Now the news is changing. Russia is on the way to resuming wheat imports on the first of July. That happens at the same time the world has a generally adequate stock of wheat. China's southern harvest started this past week, and looks to be in good shape. Western U.S. wheat is not as good as last year, but the combines will soon be bringing it out of the fields. Spring wheat in North America has some difficulties as wet conditions are preventing planting in some areas.

Response to the announcement of Russian wheat exports resuming has been a long list of "buts..." All those responses are an attempt to deny that the second derivative of the world wheat supply is turning positive in the short-term. Resumption of wheat exports from Russia and the Northern Hemisphere harvest now under way may turn wheat into the damp squib of 2011. With that, the current consolidation in Agri-Food commodity prices should continue to unfold. Given that background, what paths are open to investors?

Agri-Equities are comprised of two major sectors, large multinational companies and smaller, largely Asian, companies. In the past year as the latest Agri-Food commodity cycle was unfolding, large multinational companies, what we refer to as Tier One, performed exceptionally well. Our sample of Tier One Agri-Equities has returned about 50% in the past year versus about 28% for S&P 500.

Ratio: Tier Two / Tier One

In the above graph the ratio of a price index for Tier Two Agri-Equities to Tier One Agri-Equities is displayed. The fall of that ratio over the past year is due to the superior performance of Tier One Agri-Equities. When falling, Tier One, large multinational Agri-Equities, is doing better. When rising, Tier Two, Asian Agri-Equities, is doing better.

Arrow in that chart indicates the similar position of the ratio back in time. At about the time the previous Agri-Food commodity price cycle turned down, the Tier One Agri-Equities began to turn in poor performance and Tier Two Agri-Equities came alive. Much of the buying of large multinational Agri-Equities in the earlier cycle had been as proxies for actual Agri-Food commodities. That same response has existed in recent times. Many funds that could not buy corn bought tractor stocks.

When the previous Agri-Food commodity cycle turned down, investors looked to those Agri-Equities possessing both secular and organic growth, rather than those simply benefitting from a robust commodity price cycle. That type of growth was found in the Asian Agri-Equities. The ratio in the above chart suggests that the market may again be approaching a point where Asian Agri-Equities could again become a dominant Agri-Investment theme. Investors might be advised to ignore the extreme pessimism, most of it unjustified, on Asian Agri-Equities. They are in fact the ones closest to the structural case for Agri-Food, China and the rest of Asia.

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 © 2011 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