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

Now That Warren Buffett is Crazy About the Loonie, Here are Seven Ways to P..

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

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

Trading Psychology

When I first started trading many years ago one of the things that struck me was how even when using the same trading system, getting the exact same signals, people would invariably come up with different results.  It seemed really strange it wasn't until I realised the difference was not in the systems but in the individuals that I started to look into trading psychology.  Trading can be compared to top-class sport.  It very often places the same level of mental stress and need for psychological preparation that you find  in top-class athletes.  When you speak to or read about the best traders in the world it becomes apparent that they know  being mentally prepared is absolutely essential in today's markets.  Traders, just like athletes face unbelievable amounts of stress ,pressure and expectation that cannot be easily understood by the ordinary amongst us.

 

If you read any of the well known trading books such as the Market Wizards, you will find that most of these top-class traders indicate that psychology and the mind ,play as much if not more of a part in their success than picking the right trades.  As human beings, we are not generally wired to be successful traders we all know that successful trading is about letting your profits run and cutting your losses short, however in reality, most human beings find it easier to take a quick profit and hang on to losing trades in the hope  that they will come good in the end.  It is not easy, mentally to suffer the drawdowns that we often experience as traders without some form of help or guidance about the mental side of trading and investing.

 

A number of the top trading houses and investment banks have started turning to trading coaches to help their top traders as they realise that success in trading is as much mental as it is about picking the right trades.Part of my business www.Learning2Live.co.uk  is as a Trading Coach , my interest in Trading and Investing coupled with my qualifications in NLP (Neuro Linguistic Programming) lend themselves naturally to helping traders deals with the mental challenges of trading and investing. Over the next little while I am going to write some articles on this blog focusing on how you can improve the mental side of your trading and create wealth through the power of effective mental preparation.

 

 

Best wishes

 

 

Alan

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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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Bear with me !!

Generally as a rule we all want the stock market to go up, it feels right , it means things are all well with the world at large.However any of you who have been investing for more than a few years will know that sadly markets do not always go up.So what to do when they start to go down or start behaving in a very volatile fashion like they have been doing lately, I guess there are three things you could do:

 

1 If you are a long term investor-hold off and wait for the inevitable good times to come back-I find this hard to do sitting through drawdowns watching your capital disappear drop by drop

2 Move to cash, certainly this makes it easier to sleep at night but unless your timing is immaculate it can mean that you miss out on a lot of money making opportunities

3 Use some form of investments that allow you to make money as stocks go down.

 

I have spoken before about my use of options, however options are not for everyone and in certain accounts(like my ISA in the UK) you cannot use options.Lately there has been a growth in a number of what are being labelled Contra ETF's-basically ETF's that go up when the market declines-they can be on indices such as the Dow, S&P 500 or the Russell or they can also be on certain commodities such as Oil.

I personally like to use Proshares ETF's go here for a list of the short ones that they offer   http://www.proshares.com/funds?products=98616&fundType=   .They offer a vast range but I tend to favour the more liquid ones such as DOG (Short Dow) or DXD (Ultra Short Dow-twice the index).I also use the PSQ and the QID which are the short and the ultra short on the QQQQ index. These are a great way of either hedging some of your longer term positions or trading to take advantage of some of the volatile swings that we have seen of late. I use them for both purposes.

The advantages of being  able to trade the market long and short as well as being able to hedge are immense and can make a real difference to your returns over the short and long term. I urge you to check out the opportunities that are available with using these types of fund.

 

Over the next few weeks I will share with you some of the ETF's that I will be purchasing and using to try to rid out the volatility in the market that we are currently experiencing.

 

All for now

 

Good Trading

 

Alan