The growing Food Crisis -what should I invest in

Around the world, rising food prices have made basic staples like rice and corn unaffordable for many people, pushing the worlds poor in places such as Africa and Asia to breaking point. It is incredible listening to the news these days to hear the headlines about Global Food Shortages and riots in countries like Haiti  and Mexico. We have become so used to the availability of food in our stores that it is sometimes easy to forget that for some people it is not just a case of heading to the nearest store to get food for their table.For some it is a matter of life and death to be able to get staple items such as wheat and rice.

It has become such a problem that some of the worlds governments have had to step in to try to protect the stock that they hold.Just yesterday India placed a ban on futures trading in several commodities, including soybean oil, chickpeas and potatoes.This was an attempt to preserve supplies and keep down the rampant inflation that is being caused by the increase in food prices.

In Asia the problem is just as acute with rice continuing to make new highs on world exchanges.The demand placed on the prices of rice due to the huge populations of China and India has seen it reach astronomical levels with the price more than doubling in the last year.

As well as the impact on populations desperate to feed themselves, we are seeing the impact on countries as farmers try to capitalise on the current high prices by seeking land wherever they can to grow the crops that are being demanded across the globe.

Until the end of the last century, soybeans were practically unknown in the Amazon basin. It was not until the grain terminal was built that soybean farmers came to the region from farther south. The land there was cheaper, the banks were offering low-interest loans and sales were guaranteed.

Villages, rubber plantations and grazing land for cattle were transformed into bean fields. The farmers cut enormous swathes into the rainforest, until environmentalists put a temporary stop to the unchecked rash of clearcutting. In Mato Grosso, the most important farming region, producers and environmental activists agreed on a two-year moratorium on the purchase of soybeans from the Amazon basin.

From the Río de la Plata to the Amazon, the Chinese are sucking the markets for soybeans dry. Large segments of the state of Mato Grosso are already covered with a green, pesticide-drenched monoculture. In the dry season between August and November, a cloud of smoke descends on Cuiabá, the capital of Mato Grosso. Despite a government ban, many farmers burn down sections of the rainforest to gain more farmland.

In Brazil we see huge swathes of land being used to grow Soybeans to satisfy the demand from China .Brazil is one of China's major trading partners. Long-term contracts between the two countries are intended to secure raw materials for China -- and, more recently, food products in particular.

This rising world power, with its population of 1.3 billion, must take steps to ensure that it too does not become a victim of the Food Crisis .However it has a competitor on the horizon.India home to 1.1 billion people, has caught up with China in terms of the power it wields as a massive market. Together, the two Asian nations must feed more than a third of the world's population. In times of exploding food prices, their sheer size alone makes the crisis even worse.

It isn't difficult to imagine what happens to prices when the world's two most populous countries buy up other food products in a similarly aggressive fashion. In more and more dangerously poor countries, wheat and meat have become an almost unaffordable luxury, while famine and hunger riots are only likely to get worse.

Over the next few years I can only see these challenges becoming worse and prices continuing to rise.

In order to invest in these commodities we need to look once again at our favoured ETFs, I have a position in DBA the Powershares Agriculture Fund.You could also look at the AIGG Grains ETF (AIGC) or the individual ETFS for Soybeans (SOYB) or Wheat (WEAT).

There is likely to be volatility in  these markets so I would not bethinking short term and I will place stop losses of around 20% on any positions that I have or buy in to. Over a 3-5 year period I think these holdings will do very well.

 

Best Wishes

 

Alan

 

Technorati Tags: Agricultural Commodities,Brazil Fund,China,Commodity Investing,DBA,Commodity ETF,Grains,Soybean,Wheat

How to make Money from Higher Food Prices

I am sure like me, that you have noticed the increased prices of many food stuffs when you make your trips to the local store or supermarket.Global food scarcity is even in this day and age still a major problem.Countries such as Egypt have actually widened its food rationing system for the first time in 20 years.Russia and China are putting controls in place and other countries such as Vietnam are imposing taxes on foreign sales to protect their own supplies.

The cause of all this is that our current Global food supplies cannot cope with the increasing demands of a world population which is growing by over 70 million per annum.Not only is that a huge increase but the emerging market countries with their expanding middle classes are starting to demand Westernised , meat heavy diets.We are also seeing misguided political pressure to increase the use of Biofuels-this has the effect of diverting already stretched supplies of foodstuffs such as grains to energy inefficient fuels.

This means that over the last year while the price of agricultural commodities have gone through the roof look at the price of wheat over the same period.

Last week the price of wheat rose 25% in one day as Kazakhstan (one of the largest exporters of grain) announced a plan to impose export tariffs.This caused buyers to panic sending the price soaring.So we all pile into grains then?...well not exactly I am always wary when something moves this much so quickly and I think we are experiencing a short term bubble in the price of grains.

For me a better way to take advantage of the grains boom and one which is not so obvious-and therefore less likely to be driven up by the hype is through buying meat such as Live Cattle and Hogs.Normally this would only

be possible on the CME futures but once again the advent of ETF's or in this case ETC(Exchange Traded Commodities) come to our rescue.

They can be traded in London via ETF Securities the symbols are( LSE:HOGS) and (LSE:CATL). This will give in my opinion good exposure to the grains boom-how I hear you ask, well Livestock are fed mainly on grains so if you are a livestock farmer faced with the choice of paying the increased costs of feeding your herd or selling them in the market-it seems to be a pretty easy choice.The farmers rather than feed their livestock grain will sell it into the market and obtain record prices, they will then also sell the livestock.

If you look at the prices of cattle for the last 12 months you will see that cattle has dropped in price as a result of too much stock hitting the markets

This will mean in the near term we have too much grains everyone is planting that to cash in on the high prices and not enough meat, within the next 6-12 mths people are going to start to realise that there is a shortage of meat and this will I believe cause prices to rise. Supply and demand, Supply and demand the mantra on which the commodity markets thrive.

I would be looking for opportunities to cash in on the grains and buy the meats.If you feel really aggressive then think of going short the grains and long the meats....how can I do that in a non margin account I hear you ask...........well that is for the next post. Until then good trading.

Alan

Reference List

href="http://traderbill.wordpress.com/2008/03/03/3308a-mess-and-a-half/" rel="nofollow">3/3/08…a mess and a half « Traderbill’s Financial Markets..

Bull Market in Agriculture | Teach Talk Trade Day Trading & Technical Analy..

The value of the U.S. dollar is sinking world-wide. « Bridges to Hope..

Wheat’s Major Price Reversal : Contrarian Profits

Data Feed « Trading for the Masses

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Tracey’s Market Update : Blog Archive : Wheat: “A rally of e..

Putting the pieces together...: Commodity/Inflation Funds: Update

Commodities -How to invest without using Futures or Leverage

Technorati Tags: Commodities,Corn,DBA,Agricultural Commodities,Jim Rogers Investing,Gold,India,Oil,Powershares,Silver,Soybeans,Wheat

In the last month the volatility in the stock market has been greater than it has been for some time, we have seen three figure up and down days regularly.  In an environment such as this it is easy to understand why some people lose sight of the macro environment.  If we look at what is actually happening in the world then it becomes a bit more obvious the the areas we could consider investing in.  One investment area that has been consistently on the up over the last few years is commodities.

 

Most commodities have performed extremely well over the last few years, the obvious ones like the precious metals we are fully aware of, some of the less well known is commodities are also doing extremely well.  The question is can we take advantage of these also. For many years I traded commodity futures this is definitely not a market for the fainthearted, but until recently was the only way that most people could invest in things such as Corn, Wheat, Cotton and Coffee. In the last little while however ETF's that invest in these commodities have become available.  It is now possible to buy, ETF's that follow the price of individual commodities such as the ones I have mentioned earlier, in fact ETFS securities in London allow you to buy ETF's that track pretty much any commodity that is traded on the futures exchanges including things such as Live Cattle and Pork Bellies.

With the increasing affluence in countries such as India and China we are seeing unprecedented command for all commodities, not just the Base metals for construction and infrastructure but foodstuffs such as sugar , and wheat.The demands being placed on these crops are such that we are starting to experience real pricing pressure on a lot of our staple foodstuffs.This pressure is unlikely to go away and in fact is likely to increase as these markets demand more and more of the types of food we eat and take fro granted in the west e.g. Chocolate, Refined sugar products breakfast cereals etc.An other pressure on crops such as corn will be the increased demand for meat and poultry, it takes a lot of corn to feed livestock and as demand for meat products increases then there will be a subsequent demand for feed for them.

One of the best performing ETF's this year is the Powershares Agriculture ETF (DBA ) it is up around 30% this year already

 

 

 

 

 

 

This trend is likely to continue for a good while yet as the demand for agricultural commodities is far outweighing the supply, I recently bought the DBA again(the Green B on the chart) and intend to hold it for the longer term.The other ETF's that I like are in Cotton (CTN) Sugar (SUGA) and Coffee (COFF). Coffee and Sugar have run up quite fast of late so I am waiting for a pullback to enter these but have recently added the cotton ETF as I think we may see Cotton breaking out sometime soon.

I will talk in a bit more detail about some of the other ETF's that are available in Oil etc in a subsequent posting, but if you are not too keen on trying to pick an individual commodity there are some good baskets that you can look at DBA is one as is AIGG (Grains) AIGS (Soft's-Sugar, Cocoa etc). Another very interesting basket to look at is the Rogers Commodity Index, which is a basket of commodities that tracks picks from Jim Rogers of Quantum Fund fame, Jim has been singing the praises of commodities for many years now and as in the past has proved to be very accurate in predicting Macro trends to invest in.The table below outlines what is contained in the RJI Index and the percentages of each commodity it holds.

 

 

 

This will give you a broad exposure to pretty much all commodities and is a great way to gain exposure to these markets, Jim reckons we are still only midway through this commodity bull cycle and sees another 5+ years or so before we risk reaching a top.This could be one to add to your portfolio and top up  pullbacks. Certainly I am of view that in the 2-3 years most if not all commodities are likely to definitely outperform the stock markets and also probably prove less volatile. I currently am holding a lot in the commodity sector and will be adding to my holdings on weakness.

 

If you want to learn more about Jim Rogers views on the markets I highly recommend any of these books he has written, they are not only highly informative but also a good and easy read.

 

THE ULTIMATE INVESTOR'S ROAD TRIP: ADVENTURE CAPITALIST.: Books: Jim. Rogers

 

Investment Biker: Books: Jim Rogers

  

 

Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market: Books: Jim Rogers

 

A Bull in China: Books: J. Rogers

 

 

  

Good Trading

 

Alan

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Toro's Running of the Bulls Market Blog: Agricultural Commodities

How to Make Money in Agricultural Commodities

The above are weekly graphs of Corn, Wheat and Soybeans,as you can see since the last quarter of 2006 these have been making new highs and in fact corn has hit over $4 a bushel, this is the first time since 1996 that this has happened.

Jim Rogers one of the most succesful commodity bulls of the last 30 years has been quoted on many occasions stating that the so called "Soft" Commodites are where he sees the big growth in the next 5-10 years.Everyone is familiar with the energy and precious metal stories , but agricultural commodities are not really something that many people outside of the CBOT(Chicago Board of Trade) have much to do with.This plays in to our hands, the big money is to be made buying in to these areas before we start hearing about it on CNBC and the Wall Street Journal.Jim was telling anyone who would listen about Oil and Gold around two or three years before they really took off and became big news.We want to be in these for the next few yeasr then be selling to the masses when everyone is talking about them.

One of the major challenges surrounding these assets was unless you were willing or able to trade Commodity Futures there was little or no opportunity to play these markets directly.I personally do trade Commodity Futures ..and they are not for the faint hearted,but they were the only direct way to play these markets up till now.

On Friday the 12th of January for the first time ever investors could buy Agricultural Products through the stock market...Powershares launched an agricultural ETF (NYSE: DBA).

This new fund tracks an index which is divided equally among wheat , corn, sugar and soybeans it is run by Deutsche Bank. There are many reasons why these commodities will I believe go much higher the main ones are :

1. Agriculture has been in a bear market for many years....it is now showing signs of breaking out.


2. A lot of the rationale for this can be placed at the door of higher energy costs, these commodities are used in the manufacture of alternative sources of fuel such as Ethanol-(it is rumoured that Ethanol will be given a big push by President Bush in the State of The Union address tomorrow night.)


3. China is importing more and more of these products and they are soaking up the supplies faster than ever before.


4. Lastly the USDA revised downwards its estimates on these commodities so there is likely to be less around than previously envisaged.

I like the agricultural commodity story and will be taking a position in the Powershares Agriculture Fund (NYSE:DBA) .I would be looking to hold this for a good few years and will look for opportunities to add to it on pullbacks.

My recommendation would be to scale in to it so if you are looking to own say 500 shares then buy 300 now and look for opportunites to add another 100 and then another 100 when we get some price weakness.

I will place a 25% trailing stop loss against my position.

The website for the DBA is http://www.dbfunds.db.com/dba/index.aspx

Best Wishes and Good Trading

RT

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