Investment Help: Agriculture Re-Boom Getting Closer
A few months ago we surely seemed like those folks with stacks of dried food, jugs on top of jugs of fresh water, and gold coins stowed securely in a personal bomb shelters.
Now, the mainstream media is finally catching on and could spark the next leg up for agriculture stocks.
In our prediction for an Agriculture Re-Boom, we stated three catalysts:
1. Record low stockpiles
2. Apprehensive farmers cutting back on fertilizer consumption
3. Weather problems affecting production (excessive moisture effecting timing of planting and harvest)
It’s all starting to play out now though. And those of us who have been picking away at agriculture stocks all summer are about to reap the rewards.
Two out of Three isn’t Bad
There are so many things that can go wrong, something has to go wrong eventually. The way things are shaping up, there’s not a big enough buffer to make up the different. Agriculture stockpiles are still sitting at record lows. According to a recent United Study, global agriculture stockpiles are at 50 year lows – and trending lower.
On top of that, farmers aren’t being too aggressive either. Fertilizer consumption hasn’t rebounded yet either. The latest round of earnings reports from the major fertilizer producers provided all the proof. Mosaic (NYSE:MOS), a diversified fertilizer producer, recently announced a 91% decline in quarterly earnings on a 66% decline in revenues.
Three out of Three is Even Better
Weather, the constant variable which makes agriculture prices volatile and unpredictable, has been a farmer’s best friend and worst enemy this year.
The weather couldn’t have been worse during the spring planting season. Plantings in many of the top agriculture producing regions in North America were weeks or months behind. The late plantings have just added to the potential explosiveness of the agriculture situation.
Over the summer, the weather was as close to perfect as you’re going to see in most regions. When farmers wanted rain, it rained. When they wanted sun, there wasn’t a cloud to be found. Granted, exaggerating a bit, but you get the point.
The eventual agriculture catastrophe was averted for another year. The weather would just have to hold out of for the harvest season and all would be well.
Well, it’s fall and the weather is not holding out and crop prices reacting. Agriculture commodities rose 8% last month.
The Omaha-World Herald reports: Crop waits for sun to dry fields:
One of the slowest corn and soybean harvests on record has Nebraska and Iowa farmers biting their nails, waiting for wet and wintry weather to abate so they can bring in what experts have predicted will be a record crop.
In Nebraska, only 15 percent of this year's corn crop has been harvested, the slowest harvest on record since 1982.
In Iowa, only 12 percent has been harvested, which may be the slowest harvest since 1957 — though a state agricultural official says so much has changed in corn farming in the past 50 years that he's uncomfortable comparing eras.
Farmers say they're uncomfortable with the amount of grain that's sitting in the fields and not in their bins. In early October, the U.S. Department of Agriculture predicted record corn yields for both states.
The agriculture market is as tight as ever. It’s easy to see in that a delayed harvest sends agriculture commodity prices 8% higher in a few weeks time.
This is a massive opportunity. Agriculture prices are still up even in a record year for production. Not every year will be a record year and the market is still tight.
If you take a step back from the short-term news and look at the big picture the opportunity becomes more apparent. The price of corn is 50% higher than it was than it was in 2003. That’s before worldwide demand really started to increase. The trend is still up and the only thing which has prevented a genuine surge in agriculture prices again is record production years.
One of these years the weather will not work out so well for agriculture production. No production records will be set, crop prices will soar, and then the rest of the world realize the opportunity here. Most importantly, you’ll be glad you took this opportunity to load up on high-quality agriculture stocks now.
Good investing,
Andrew Mickey
Chief Investment Strategist, Q1 Publishing
