06/21/2008 How to profit from the global agriculture boom How to Profit from the Global
Agriculture Boom
"You won't find anything like this anywhere else in the world," said my guide.
We pulled off the highway and started down the dirt road toward Protein City. My guide pointed to an empty field on our right. Next year, this field will be a neighborhood with 4,000 houses, he said.
He pointed to another development on the other side of the road. They'd already built the houses here. Each house was about the size of a hotel room. Each had white walls, a red roof, and windows on either side of the front door. They stood in neat rows like a Roman military formation.
These houses will accommodate Protein City workers and their families.
We continued down the track. Four double-articulated tanker trucks – the kind with two trailers following the tractor – passed us in the opposite direction. They carried biodiesel.
All the trucks in Protein City are double-articulated. In New York City, you see yellow taxicabs everywhere. In London, it's the red double-decker bus. In Protein City, you see a double-articulated truck every time you turn your head.
Protein City is still under construction. On one side of the road, 100 iron pillars pointed to the sky. Workers had spaced them in neat rows and set them in cement. Soon they will lay a structure the size of an airport hanger on these pillars.
On the other side of the road stood a white tent, 15 stories high... and a quarter of a mile long. This is where they will crush the soybeans. All around me were dozens of refinery-size fuel storage tanks, grain silos, and assorted industrial installations that I couldn't identify.
Everywhere I went, people talked about Protein City. Most of the people I met worked here in some capacity... engineers, managers, architects, accountants, laborers. Even the people who didn't work here talked about it.
"My house has tripled in value since they started building it," said one person.
"It has brought thieves to the town," said another.
Protein City is my name for a huge agro-industrial complex under construction in the center of Brazil. This development will soon produce the world's cheapest agricultural commodities... like pork, beef, poultry, cotton, grains, and biodiesel. The owners of Protein City will then make fortunes shipping these commodities all over the world in enormous quantities.
In this report, I'm going to show you why Protein City is set to experience a huge boom that will last for many years... all thanks to the global bull market in agriculture. I'll also share the details on the best ways to invest in this bull market... and how to own the world's most efficient farming operation.
How to Invest in Agriculture
I first turned bullish on agriculture in 2005 when I realized the ethanol boom would consume a third of the U.S. annual corn crop.
As I investigated this story, I realized global population growth, rising prosperity in Asia and around the world, shortages of arable land and clean water... and a bull market in commodities... would send agriculture prices through the roof.
I visited grain elevators in the Canadian prairies. I met with executives from agri-business giants like the Saskatchewan Wheat Pool. I watched tractors rake the $100 million corn pile at one of Iowa's largest ethanol plants. I saw Chinese scientists clone cows from behind a glass window at one of America's top life-science laboratories. I've inseminated hogs, interviewed America's top grain traders, and climbed aboard moving grain hoppers.
At the time, no one paid attention to me. Even my colleagues thought I'd taken my investment ideas too far into obscurity. You simply couldn't invest in soft commodities. The public had no interest. Wall Street earns its living selling investments to the public. The public didn't care for agriculture investments, so Wall Street didn't bother providing them.
Now... years later, it's clear I was right. Wheat and soybeans are at all-time highs. Corn is near a 50-year high. Potash Corp – the Canadian fertilizer stock – is up 500%. AGCO – the farm equipment maker – is up 200%. Monsanto – the crop genetics and chemicals company – is up 300%.
Why Grains Will Return to 1947 Prices
As much as the price of food has increased, I believe this trend is just getting started. Here's the thing about food price controls: They make the shortages much worse and demand for food much greater. It's a bit like trying to put out a forest fire with gasoline.
Take Argentina, for example. Argentina is the world's largest consumer of beef and the world's fourth-largest exporter. When beef prices rose 26% in the first few months of 2006, the Argentine people started complaining. So the government banned exports of beef. It made this decision to keep Argentina's beef inside Argentina.
The increased supply would cause prices to fall. Prices did fall. Now I imagine Argentinean demand for beef is higher than it's ever been before – because prices are so cheap. Meanwhile, if you're a farmer in Argentina, I bet cattle farming is the last business you'd want to enter. With prices so low, you won't be able to make a profit.
So now people eat even more beef, and farmers produce less. Prices will explode one day. Price controls, subsidies, and export bans always have the same effect: They make the situation worse.
Food has already incited riots in Mexico, Yemen, India, and Burkina Faso... and boycotts in Italy and Argentina. The Kremlin forced suppliers to freeze the price of milk and bread in Russia. Thailand, Ecuador, Benin, Senegal, Egypt, Argentina, and Venezuela have also capped food prices. Zambia, Ethiopia, and Pakistan have suspended food exports. Jordan, Ethiopia, Malaysia, and Pakistan are stockpiling major foods. Turkey, Mongolia, Indonesia, and Morocco have cut import tariffs. And Egypt, Jordan, and Oman have increased food subsidies.
With all the government intervention in the food markets right now, I see huge price rises in the future. How high could food prices go? After the government lifted price controls in 1947 following the Second World War, corn futures hit $2.75 a bushel, soybeans hit $4, and wheat futures hit $3.09. That's equivalent to $26.03 per bushel of corn, $37.86 per bushel of soybeans and $29.25 per bushel of wheat in today's money.
As I put this report together, corn trades for around $5.75 a bushel. Soybeans go for $14 a bushel, and wheat $9.50 a bushel. I believe crop prices will reach 1947-level highs again at some point over the next two decades.
By T om Dyson
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Agrilandsales Comment
It's not the first time ambitious plans to turn Amazonia into food production - there was one huge sugar cane production in late seventies that comes to mind, that foundered. However, prices and demand are much higher now, with billions more mouths to feed.
In reality, there is a lot of unused or under used farmland in the world. Argentina, the "Ukraine of the south" is one of the most obvious examples. And an illustration of the mind boggling economic ignorance, or political partisanship, at work. The "loopy broad" President of that country as one well known American based investor guide described her, Cristina Fernandez, increased soy export tax to 45%, efectively killing off a surge in exports. That increased wealth of farmers in a low or no export environment would feed directly into greater farm employment, equipment purchases and local spending in general is too obvious an economic benefit to recognise by this and other politicans. It's got to run through the leaky and inefficent hands of government who "know best" and can earn brownie points in boosting so called social programmes, and may be votes.
However, I would compare Ukraine more with Italy than Argentina. Arguing politicans, but business gets done. When the busines and ruling elites cotton on to the profits to be made from the country's huge land assets, it won't be surprising to see a more favurable legal environment arrive.
Editor
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