ned schmidt tries logic with investors

AGRI-FOOD THOUGHTS
by Ned W. Schmidt, CFA, CEBS
Schmidt Management Company
September 3, 2008


If one listens to the popular business media, commodities are dead. When paper oil was trading at $147, the sky was the limit. Now, all is going down. Perhaps they are little more than trend followers? What we really need to know is if the world is awash in grains. Truth is, that view does not in any way describe the global situation. The world has entered an era, ten years or more remaining, when Agri-Food will be in short supply. Whether China grows at 11+% or 9% does not change the conclusion. In China 1.3+ billion people are experiencing rising incomes, and they want to eat better. In line behind them are 800+ million Indian consumers, anxious for work and a better life and diet.



This week's chart, using data from the USDA, is of global coarse grain stocks. The green bars, using the left axis, are the estimated ending stocks of these grains. More import, though, is the red line, using right axis, which is the estimated number of months of consumption those grain stocks represent. Yes, around the world the harvest has been good. Grain stocks rose in 2008. However, each year the demand for food rises as the number of world consumers increases and their incomes rise. Ending stocks are projected to fall to another record low relative to demand in the coming year. The world may have plenty of copper and platinum for now, but did you ever try to eat a bowl of them? The tight global Agri-Food situation is due to combination of rising Chinese incomes and a fairly rigid supply of productive land and water. As a consequence, farmers, around the world, are enjoying unprecedented prosperity. Guess what? They are spending the money on all those things they need to farm. Forget such trivia as loan losses and which fool might buy Lehman, start moving toward future investment prosperity with Agri-Food.

http://www.financialsense.com/editorials/schmidt/2008/0903.html