Today a sign of true wealth is owning a horse. Cost of feeding them has escalated dramatically as Agri-Food prices have risen. Owning two horses is an ostentatious flaunting of one’s wealth. Paying an Iowa farmer for corn with which to produce ethanol is still criticized by many poorly informed individuals. They might better serve to lower food prices if they attacked the frivolous feeding of Agri-Foods to horses. Perhaps horse ownership should be banned except on working ranches. That all said, any Agri-Food shortages around the world are due to government policies. Horses and weather only serve to exacerbate the situation.
As is readily apparent in the chart above, Agri-Food prices continue to march into all time high territory. Weather has certainly played a role in such a development. Drought in China being the latest development to follow the worst bout of bad weather in Australia’s history. Today’s weather story is not about rain, or lack thereof, but rather the frigid cold covering North America.
From Kansas City to St. Louis temperatures are running -40 to -10 F(-180 to0 -20 C). From that line north seems that snow is covering all. That is serving to restrict the flow of Agri-Foods, and just about the movement of everything else. While the longer term forecasts for Agri-Food supplies are indeed bullish for prices, today’s North American weather may be a factor.
But Spring will come. So will the thawing and rains where they are needed. As that happens, Agri-Foods will again be flowing more freely in North America. Prices in short-term will be vulnerable then to improved supply flow. About that time too will flow the first of planting intention reports for North America. With visions of high prices dancing in their heads, farmers will have high intentions. Reports on planting intentions will likely be an exaggeration of reality, but an appearance of high intentions will dominate. Spring weather and planting reports may serve to provide the first Agri-Food price correction in some time.
While corn is on the mind of traders because of the growing short supply situation in North America, the world might better look at developments in rice. As the above chart portrays, U.S. rice prices have broken through the last high. U.S. rice prices are now at a 90-week high, and seem poised to move higher. Factors driving prices upward include expectations for lower U.S. rice plantings as farmers shift to more profitable corn and soybeans and reports of tight supplies in China.
Rice is perhaps more vulnerable to upward price pressure than many might expect. Reason for that is a myopic focus on the big picture. Like all macro numbers, or averages, nothing of the variance of those rice holdings is immediately evident. In the above graph, using USDA estimates, the world has about 76 days of rice consumption in reserves, shown by left bar in chart above.
That number, however, tells us nothing of the distribution of rice reserves. China consumes about 30% of world’s rice, but its rice reserves are 46% of the world’s total. As the middle bar in chart indicates, China has about 115 days of rice consumption set aside. If we exclude the Chinese rice influence, the world has only about 59 days of consumption in reserve. Some nations are obviously going to be very short of rice this coming year.
Chins is the epicenter of the world’s increasingly tenuous Agri-Food situation. India’s ascendency in the global economic hierarchy will only serve to exacerbate the situation. Investors have already benefitted from this situation as the first tier Agri-Equities have moved higher, outperforming the market. Current opportunity would seem to lie with those most close to the Chinese Agri-Food situation.
Second tier Agri-Equities with direct exposure to China have, one, performed exceptionally well over time, and, two, marked time for most of the past year. Chinese Agri-Equities seem the better alternative as they have been building a foundation for some time, have direct exposure to China, and have fairly negative perceptions problems at the present time. Investors should be now researching these Chinese Agri-Equity opportunities.
