Agri-Food Investment Thoughts
Ned Schmidt, November 18th, 2009
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Bounty is the child of shortage. The grandchild of bounty is also called bounty, and begets again shortage. When those generations are born with fanfare, the world is made well aware of the situation. However, creeping shortages go unnoticed. The latter are also more serious as they reflect structural changes emerging in supply-demand. Globally, Agri-Foods may be giving birth to an era more akin to shortage than bounty.
During most of the post World War II era, supply was dominant in the global Agri-Food system. That situation seemed to many to be likely to persist indefinitely. In the last decade, as a new Chinese economy emerged, the global Agri-Food system has become more dominated by demand. China has learned that feeding the population is not a food problem, but an income problem. Give the people jobs that generate incomes, and they will simply buy the food. India, with another billion people to feed, may also, despite the best efforts of some politicians, come to fostering income growth in order to feed the nation.
Analysts persist in a misunderstanding of the economic development of China. Yes, that periodic economic disturbances could occur there do to economic imbalances is acknowledged. Any disruptions in economic growth should and when they happen, will not interrupt the longer term growth trend. The much predicted crash of the Chinese economy simply has not happened. Tomorrow in China though is far brighter than ever, and certainly far brighter than in a nation dominated by wealth destroying policies of the Obama Regime.
Those looking to the future are indeed acknowledging the middle income miracle unfolding in China. bloomberg.com, 4 November 2009, reported, "Disney Wins Approval for Park in China's Richest City," "Walt Disney Co. won government approval to build a theme park in Shanghai, giving the world's largest media company access to consumers in mainland China's richest city." The Disney park will cost nearly $4 billion. Nothing says middle income consumers more than Disney. The Disney park is both a sign of positive direction within the government, and the potential of China's future.
Global Agri-Food system, however, may not be ready for the consumption that follows income growth in Asia. A presumption that globally the Agri-Food system would persist in a long supply condition may be an error. Little attention has been given to the rising demand for food arising globally. Further, inadequate attention has given to the weakening of the supply potential of the global Agri-Food system. Analysis still focuses mistakenly on single grains as if they exist in isolation.
Our first chart this week, below, is part of an effort to help investors understand that supply is only relevant when compared to demand. In that chart are the months of consumption in storage on a global basis for the major Agri-Food grains and vegetable oil. These estimates come from the diligent researchers, economists, and statisticians at the U.S. Department of Agriculture (USDA).
