Today's chart of the day shows that Agri-commodities have taken an absolute beating over the last couple of months just like every other market apart from US Dollar and DM Government Bonds. However, unlike majority of the markets, Agricultural commodities have great fundamentals within the demand and supply context.
The truth of the matter is that demand and supply outlook only continues to get worse with time, as we continue to neglect supply shortages in almost every major grain and soft. This will guarantee that Agriculture will have a great future. Therefore, I do not think that the current cyclical downturn in Agriculture will last for too much longer, before secular fundamentals take over.
Therefore, another leg down in selling pressure will be enough to lure me to invest for a longer term buy. My favourite commodities in this space continue to be Rice, Soybeans, Sugar and Cocoa.
I share your interest in agricultural commodities. How do you view US Cotton below $ 100 ? Upside potential looks rather good. But I cannot figure out how decrease of subsidies to the farmers will affect prices. Because there is talk of that.
ReplyDeleteAnyway, I appreciate your site very much. Thanks for all the work you do for it.
Hi EdArnhem. My view on Agriculture is pretty much all the same across the board so having said that I am very bullish not just on Cotton, but everything in that sector.
ReplyDeleteIt is very easy my friend. First of all, before I start, you need to understand that farming is an awful business right now and has been awful for decades. Why? depressed prices.
Majority of farmers are losing money. Why? Depressed prices.
In certain major countries around the world, farming has the most suicides out of any profession. Why? Depressed prices.
Majority of the farmers around the world are now above 50 to 55 years old. In a decade or two, there will be no more farmers. Why? Depressed prices.
Young people are all trying to be marketing wiz-kids, social network programers, hedge fund managers or uptown fancy lawyers. Why? Depressed prices.
So if governments give less subsidies to farmers, that is just going to make things even worse than it already is. Plain and simple, until prices rise two or three times from these levels, agriculture will be an awful business, where farmers will have no incentives to increase inventories, which tends to keep prices low.
And if this doesn't happen? Well we won't have any food to eat soon. We won't have food at any price, even if Corn goes to $25! Sugar inventories are at 37 year lows, Corn inventories are 25 year lows, Cotton is at 17 year lows. It takes 6 to 7 years to grow a Cocoa tree or a Coffee tree. China now consumes 60% of all Soybeans in the world and they keep running out. I think they have only a few weeks of supplies at most.
There are massive shortages in the whole Agriculture and there are massive shortages in farm work. No one wants to be a farmer Ed. No young kid from Tokyo or Hong Kong or New York want to be farmers. They are all trying to be painters, photographers, rappers etc etc.
The whole industry is been a total disaster, which means that it will be a great profession for the next decade or two. Prices are going to rise so high, that everyone will once again stop trying to be a fancy banker or a lawyer and learn how to drive a tractor like its 1960s or 1970s all over again!
That is my view.
That makes a lot of sense! Thanks,
ReplyDeleteEd