Time to Invest in Food?
Ned Schmidt, October 22nd, 2009
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This past weekend while reading Barron's we were delighted to find that another researcher had discovered Agri-Food investing. However, the recommendations were fairly indicative of someone early in the discovery process. We think that is the case with many investors. They have been waiting to have the story verified by stock prices. That has been done.
The Agri-Food investment story has been unfolding for more than three years, and has another ten or so years to go. For that reason, investors still have plenty of time to uncover the opportunities for profits in a world soon to be far more hungry. Agri-Food cannot be produced in factories with lower marginal costs for new production. Unlike consumer electronics, marginal production will have a higher cost.
For centuries mankind has sought to satisfy hunger. Only in the second half of the 19th century did food become more plentiful with improved availability. Yet even after that period food was not adequate in all countries. The Russian grain purchases of the 1970s were the first time in Russian history when a food shortage was not satisfied by starvation. China has uncovered a far more humane and far more successful approach to hunger. For you see, hunger is not a food problem. Hunger is an income problem. China has discovered the secret to feeding its people. Give them jobs that produce incomes, and they will simply buy the food. As we can observe in the chart below, those in front of that spending have benefitted.
Usually when we visit, the fundamentals are the starting place. After that, we normally turn to what the investments might have been doing. This week we decided to reverse the process. In the first chart above are the estimated returns on a basket of Agri-Food stocks. Note that the one year and two year estimates are from the end of October in the respective years so the time periods are not quite as stated, but the message is the same.
