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

Invest in Water it is the new Oil

I was working recently in Lisbon in Portugal and was talking to some of the locals  about the weather,being from Scotland I was looking forward to some of the Lisbon sunshine and warm temperatures.Unfortunately for the three days that I was there the weather was similar to my native Glasgow- wet and windy. The locals had commented that they had a lot of rain so far this year but not enough to make an impact on water prices.

Now being from Scotland as I mentioned it is strange to me that people pay for water usage-in Scotland we pay a local tax for sewerage and treatment facilities but not the amount of water that we use.What struck me as I thought about it was the wastage that there is in countries like Scotland compared to other countries in the world where water is a much scarcer  commodity. Loch Katrine which supplies most of Glasgow's water has a capacity of approx 64.6 million litres and is regularly topped up by the Scottish Weather.

Listening to my colleagues in Lisbon I realised that we could do a lot more such as not having the tap running constantly when brushing our teeth and not using running hot water to do dishes .These practices are fairy common in Scotland but in other parts of the world would be considered crazy and wasteful. We are in the privileged position in Scotland( but not all of the UK where some areas do suffer from droughts and water restrictions) of not having to worry about a plentiful supply of clean water.In the rest of the world it is a very different story. The world's immediate need for fresh water remains paramount.

Loch Katrine: Scotland

In China, for example, two out of every three major cities have less water than they need. Cities in northeast China have roughly six years left before they run completely dry.

A recent report on the water situation in China  says up to 300 million people are drinking contaminated water every day, and 190 million are suffering from water related illnesses each year. If air pollution is not controlled, it says, there will be 600,000 premature deaths in urban areas and 20m cases of respiratory illness a year within 15 years.One third of the length of all China's rivers are now "highly polluted" as are 75% of its major lakes and 25% of all its coastal waters. Nearly 30,000 children die from diarrhoea due to polluted water each year

Although China is the world's fourth largest economy, growing 10% a year and closing rapidly on the US, Japan and Germany, its environmental standards are often closer to those in some of the poorest countries in the world, says the report. More than 17,000 towns have no sewage works at all and the human waste from nearly one billion people is barely collected or treated. Nearly 70% of the rural population has no access to safe sanitation.

"A majority of the water flowing through China's urban areas is unsuitable for drinking or fishing. Some 300 million people drink contaminated water on a daily basis," says the report.

Although China has tried to improve its air quality, it has not invested enough to keep up with the flood of people to its cities, many of which have some of the worst pollution in the world. The burning of more than 2bn tonnes of the dirtiest coal a year is costing the economy the equivalent of 3-7% of GDP (£8-15bn a year), according to the report. While no specific figure is given for the overall cost of China's pollution, in 2004 it was thought to be in the region of £32bn.

Songhua River in Harbin China

The report estimates that 27% of the landmass of the country is now becoming desertified. Much of the country already suffers from water shortages, but the Chinese Academy of Sciences expects water demand to increase by nearly 50% in the next 40 years. Industry's share of this is expected to grow from 16% to 41%.

Low environmental standards are now making people wary of buying Chinese goods, said Lorents Lorentsen, OECD's environmental director in Beijing yesterday. "If you have a reputation for being a polluted country, then you have a bad trademark abroad. It's very hard to sell pharmaceuticals, to sell food and feed from a country that has a reputation for being polluted," he said.

A lot of westerners, however, take water for granted. We simply turn on the tap and it flows. But that's certainly not the case the world over. And from they way things are looking, that may not be the case here much longer. Lakes around the U.S. are running dry. In the West, we see this happening at Lake Mead. In the East, it's Lake Lanier.

While it may not be traded in Chicago, water is a commodity. When scarce, it's the one commodity even more valuable than oil or gold.So when Big Oil starts pouring money into water rights and alternative energy, we want to pay special attention. We tend to believe that water rights will be valued in this century much as oil rights were in the last.

Companies that invest in cleaning up water I believe will do well in the years to come as the world realises that it has to do more to ensure clean drinking water for all.Countries like China are a huge market for these companies.

One of my favourite stocks in this area is Veoila Environment (NYSE:VE)  they are a a world leader in environmental services and stand to do well out of the shortage of clean water in the future.

We can see from the chart that the trend is most definitely up but there has been a pullback since the beginning of the year which may present a good buying opportunity.

 

 

 

 

Best Wishes

 

Alan

 

Technorati Tags: Invest in Water,Ve,Veolia,Water Stocks

Why a Weaker Dollar is good for America

For a long time now we have been exposed to the US President ,Treasury Secretary and various Senators talking about the benefits of a strong Dollar and how that is in the interests of America.This is really all just political rhetoric the reality is somewhat different . In its current situation the last thing that the US needs or wants is a strong dollar- but unfortunately it just isn't politically the right thing to say.So why is a weak dollar good for America ?

Well if anyone has been to the US recently or if you are indeed a US citizen you cannot fail to have noticed the increased prevalence of foreign accents that seem to be in every restaurant or store.It seems that America is on sale and the rest of the world is buying. Since 2002 the dollar is down about 25% and the rest of the world is taking advantage .Not only do they flock in their droves to the US to spend their money but it is good for exporters as well who find that demand for their goods increases the more the dollar weakens.

Tourism is a huge industry for the US but not only for attracting foreigners to its shores but as the dollar weakens and it becomes more expensive to go abroad more and more Americans are opting for Disneyland Florida and not Disneyland Paris. Not only does the weaker dollar make it more attractive to vacation there but it also makes it far more attractive for foreign investors -whether it is the huge cash piles of some of the Far East and Middle Eastern Sovereign Wealth funds or someone looking for  a US holiday or retirement home

Foreign ventures put $407 billion to work in the U.S. in 2007. That was a 93% increase over 2006. The Chinese, in particular, were an active bunch. Chinese investment soared from only $66 million in 2006 to $9.6 billion last year.American assets should attract even more foreign buyers this year. The Chinese are eyeing American timberlands, for example.  American farmland, mines and other hard assets must also seem cheap.The weak dollar affects things in a couple of ways. On the one hand, it makes imports more expensive. So far, a weak dollar has not stopped imports from growing nationally, though it has slowed the pace. On the other hand, the weak dollar has really benefited America's export engine as I indicated above.

Exports grew twice as fast as imports in 2007. For the first time since 1995, the gap between the two narrowed. America's commodity producers get a lot of help when the dollar falls. They incur their costs in dollars. Yet they sell into the global market for metals, minerals and other commodities. Global prices are all near multiyear highs, thanks in some measure to the weak purchasing power of the dollar.

America's manufacturers - what's left of them - also gain. Strong demand from overseas drives their sales. Suddenly, America's goods look cheap. "Foreign demand for advanced machinery is huge," reports The Economist. "Civilian aircraft, drilling tools, agricultural machinery and excavators all rose at double-digit rates in 2007."

So in terms of investment opportunities we should be thinking about companies that export a lot of their goods overseas and possibly those in the Hospitality and tourist industries. So no matter what Hank Paulson and his cronies trot out at each press conference the weaker the US dollar gets the more likely they are to be able to find a way out of their current situation and to reduce the Current Account deficit.

 

Best Wishes

Alan

 

Technorati Tags: Strong Dollar Policy,Weak Dollar,Foreign Investment in US,Investing in US Tourist Industry

Investing in Emerging Markets using ETF's

 

Continuing on my recent themes of investing in emerging Markets, it may be worth looking at the Deutsche Bank x-trackers these will give you exposure to numerous emerging markets including India, Vietnam, Korea, Taiwan, Brazil and Russia.

You can find details at www.dbxtrackers.com

 

 

Best Wishes

 

Alan

Technorati Tags: Russia,Brazil Fund,Investing in Brazil,Investing in Russia,ETF,Emerging Markets

How to Invest in Russia-What to Buy

Yesterday I looked at the story behind Russia and outlined some of the positives and negatives for investing there.From Russia with Love ? Today I am going to look at some of the ways you can invest in Russia if you feel positive about the potential in that emerging market.

Since we discussed the story behind Natural Gas then the most obvious play is Gazprom (LSE : OGZD). Its former chairman is now the Russian president ..........so you do the math re the environment for Gazprom going forward !! There have also been recent increases in Domestic gas prices in Russia which are going to be of benefit. I also mentioned the deal that Vladimir Putin had struck with companies in the Caspian Sea area and Gazprom will also be a beneficiary of that.

 

The increased need to get more out of the worlds agricultural supplies is having a big impact on fertiliser companies-just look at Mosaic  (MOS) over the last few days. Russia's answer to Mosaic is Uralkali (LSE: URKA) and it should do well over demand from China for fertilisers in the medium term.

The need to improve the railways will also impact positively on Evraz Group (LSE: EVR).

If you are uncomfortable picking individual stocks then Lyxor have a Russia ETF (LRUS) which will give broad exposure to the Russian Titans 10 index.

 

In my next post I will look at Brazil and the opportunities that may be there for investors looking to invest in South America and its economies.

 

 

Best Wishes

 

 

Alan

 

Technorati Tags: Investing in Russia,Gazprom,Russia ETF,Invest in Brazil

Update on China Opportunities

You will have seen a previous post regarding opportunities in China,I have been looking at another stock recently and am likely to buy some at the market open on Thursday, that company is Aluminium Corp of China (NYSE: ACH).

ACH is the second biggest Aluminium company behind Alcoa and it seems to be very favourably priced on a P/E basis(price Earnings Ratio) compared to its competition, it is trading at less than 8 times earnings compared to nearly twice that at its rivals, it also is on track to pay a dividend of 10%.

The fact that Aluminium has corrected in price recently is an added bonus. I will be looking to add ACH to my portoflio and place a stop loss of 20%.

Best Wishes

RT

Tags: ACH, Aluminium, Alcoa, China

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Go East Young Man-Made in Taiwan and the China Syndrome Part 1

The US Markets are closed today so I thought this might be an opportunity to look beyond the US shores to another favourite market of mine-the Far East.For many years the Asian Markets have lagged far behind the US and Europe.I think we may be seeing the tentative shoots of recovery in certain markets.Japan is still a wildcard but I believe that 2007 may prove to be a good year for Taiwan. In 2006 a number of emerging mkts including some in Asia have hit all time highs but Taiwan still lags and is over 43% below its high from Feb 1990.Taiwan is home to some of the largest Tech and Electronics companies in the World. Companies that produce I-Pods and the Mini Mac as well as supply major IT companies such as Dell and Hewlett Packard-the link therefore to PC and Semi-conductors is inextricable-when these markets boom so does the Taiwanese economy.If you believe that these sectors are likely to start to move in 2007-(think Vista and PC's) then Taiwan is a good place to invest.For me the best way to play this is via the iShares MSCI Taiwan Index Fund(EWT-NYSE).This fund is broadly based and diversified but heavily weighted to Technology Companies. Another boost for Taiwan is that it is one of the major trading partners of China. The Chinese economy is still one of the fastest growing economies in the world and as the mass Chinese become more affluent then they will increase their expenditure on goods such as PC's and Technology-this can only be good for the Taiwanese economy and for the iShares MSCI Taiwan Index Fund(EWT-NYSE).I will be opening a position in this fund at the mkt tomorrow.I will also post Part 2 of this communication looking in a bit more detail at opportunities to gain some exposure to China such as Hong Kong Shanghai Bank (HBC) , Templeton Dragon Fund (TDF-NYSE) and China Medical Technologies (CMED-NYSE).



Best wishes for the New Year and Good Trading

RT