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Is Food the New Distressed Asset?
During the sixties, new dwarf varieties, irrigation, fertilizer, and heavy duty pesticides tripled crop yields, unleashing a green revolution. But guess what? The world population has doubled from 3.5 to 7 billion since then, eating up surpluses, and is expected to rise to 9 billion by 2050.
Now we are running out of water in key areas like the American West and Northern India, droughts are hitting Australia, Africa, and China, soil is exhausted, and global warming is shriveling yields. Water supplies are so polluted with toxic pesticide residues that rural cancer rates are soaring.
Food reserves are now at 20 year lows. Rising emerging market standards of living are consuming more and better food, with Chinese pork demand rising 45% from 1993 to 2005. The problem is that meat is an incredibly inefficient calorie transmission mechanism, creating demand for five times more grain than just eating the grain alone. To produce one pound of beef, you need 16 pounds of grain and over 2,000 gallons of water. I won’t even mention the strain the politically inspired ethanol and biofuel programs have placed on the food supply.
It is possible that genetic engineering, sustainable farming, and smart irrigation could lead to a second green revolution, but the burden is on scientists to deliver.
The amount of arable land per person has fallen precipitously since 1960, from 1.1 acres to 0.6 acres, and that could halve again by 2050. Water is about to become even more scarce than land. Productivity gains from new seed types are hitting a wall.
China, especially, is in a pickle because it has 20% of the world’s population, but only 7% of the arable land. It has committed $5 billion to agricultural land in Africa. There are now thought to be over one million Chinese agricultural workers on the Dark Continent. Similarly, South Korea has leased half the arable land in Madagascar to insure their own food supplies.
An impending global famine has not escaped the notice of major hedge funds. George Soros has snatched up 650,000 acres of land in Argentina and Brazil on the cheap, an area half the size of Rhode Island, Others are getting into the game, quietly building portfolios of farms in the Midwest and the South.
In 2009 one of the greatest crop yields in history, brought on by perfect summer weather, delivered one of the largest grain crops in history. Fall rains and an early frost meant that much of this bounty ended up rotting in the field, providing the backdrop for price rises of 30% across the board. The US Dept. of Agricultural January crop report then predicted that we are going to see a replay of record production this year, slamming prices once again, and delivering limit down moves in the futures markets. But the weather may not cooperate, as it did last year.
The net net of all of this is that food prices are going up, a lot. Use this year’s expected weakness in prices to build core long positions in corn, wheat, and soybeans, as well as in the second derivative plays like Agrium (AGU), Potash (POT) and Monsanto (MON). You might also look at the PowerShares Multi Sector Agricultural ETF (DBA).
For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily, or listen to me on Hedge Fund Radio at http://www.madhedgefundtrader.biz/
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The number of green revolutions can be debated nearly endlessly. What cant be done is to reduce it to a number lower than 2.
There have been at least two green revolutions: the mentioned chemical one and a mechanical one that happened at the beginning of the 20th century.
Those two cant be argued.
Yet the article does not take into account the first one.
Could it be because the first green revolution did not impact the world population as the author wants the second to? With third worlders soaking up the food surplus and stuff?
I work for POT and the potash industry is going flat out trying to refill the pipeline. There has been next to no potash moving into China for close to a year now and they are playing a very dangerous game since supplies are fully committed elsewhere. The overall industry capacity is no where near what everyone claims it to be due to numerous bottlenecks in the system. I think China is attempting to do to potash suppliers what they could not do to iron ore producers, but they do not realize that no one really cares. So I suspect food inflation in China due to reducing yields will cause a bit of panic which is essentialy the lesson India learned a while back. I'm playing this through DBA with a 50% return by the fall of 2011. I don't play the potash producers due to conflict of interest with POT and my relatively low opinion of MOS and AGU.
Yes, by all means, let's do everything in our power to ensure the totally unsustainable birth rates in the Third World continue for just a tiny bit longer.
Seriously. That's what we're talking about. Indebting ourselves to help countries that can't control their own population growth and can't manage the prosperity to feed their own citizens.
So what if we have a second Green Revolution?
Then the Third World will use up that capacity in maybe another decade.
All of that is just postponing the problem of a population growing far too rapidly.
Countries have to control their own birth rates. Nations need enough prosperity to feed their citizens, or few enough citizens to match their prosperity. That's all there is to it.
The real problem is the lack of water for crops over the next 20 years or so.
I read a report that most agriculture in the United States in the plains relies on the Ogalala Aquafier. This is an enormous underground lake that runs through eastern Colorado into northern Nebraska, and up along the eastern base of the Rocky Mountains.
Apparently, this aquafier is supposedly going to go dry in about 20 years.
It's not easily replenishable, because the underground reservoir was produced by millions upon millions of years of runoff from the Rocky Mountains.
I don't know how true the claims about it going dry are, but it's definitely supposed to happen within our lifetimes. This would be devastating for irrigation all along the plains.
Luckily, I happen to have some land near the continental divide, complete with a well. It has the best water on Earth. The well water there is much better (and colder) than bottled water. It's SOOOO good. I love the well water there.
i agree with your assessment on water....china will have its problems with water as well.....and they have just a few more people than we do..water will be at the top of the investment scheme within our lifetime(s)
Here's a wiki article about it. Even the wiki says that it is going to dry up in as little as 25 years. The report I saw said 20. Oh well... not very different on a large time scale.
This could be devastating for our nation if it goes dry, as it will force us to either find new water sources, or pare back agriculture considerably.
http://en.wikipedia.org/wiki/Ogallala_Aquifer
Science has delivered, frankenfood. No thanks to that toxic mess. Evil Monsato and their bioengineered mess has wreaked havoc on this earth.
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"It is possible that genetic engineering, sustainable farming, and smart irrigation could lead to a second green revolution, but the burden is on scientists to deliver."
Science has delivered, frankenfood. No thanks to that toxic mess
And now we have to deliver Healthcare, to take care of all those millions who ate gobs of that FrankenFood.
Suddenly, FrankenFood doesn't look so cheap...
this is hogwash. madhedgefund dude and 1000s of others have been harping on this for 2 years now even as grain output has gone UP with record harvests and more than enuff food for all. this is simply wrong
also companies like mon make the long term cost of food production go down and thus pressure prices, the exact opposite this guy is prophesizing
FYI, flour costs less now, on an inflation adjusted basis, than it has in the last 500 years (and probably ever in history, we don't have good inflation data going back further than that).
Maybe the science has made it that way permanently, but I, and a lot of other people, don't think that is the case. More than likely, a significant increase in fuel prices will cause the price of many agricultural commodities to skyrocket. Factory farms can't work very well without cheap fuel inputs.
1st off, they use NG in fertlizer business and we have plenty of that cheap
2nd, eventually farmers themselves will have NG tractors, etc thus eliminating oil issue
#3 world population and food demand increases in 2008 and commodity prices crashed
along with all these stocks
Hight tech and ag will be the brightest spot as today's economy slides away. Makes more sense to learn how to grow food than watch/play the markets. Figure we got about two years left of the socialists "kicking the can down the road." It will blow up and then some very dark times. Water, food, guns and shiny metals. Bartering will rise to heights not seen since the 1930's. Great article. So what is everyone going to grow this summer? (Hint: It won't be your portfolio....)
Food Prices are tied to inflation... thus the profits from inflation equate too?
Or... land...arable, which has little if not value now... or distressed farm land... would be of significant value going forward with a rise in food prices...
http://www.prnewswire.com/news-releases/global-food-security-depends-on-...
http://www.globalresearch.ca/index.php?context=va&aid=12252
sprinkle on top some bad weather... and a long term out look and we are ready to bundle and sell off shares!
IF the Malthusians are ever right (how long have they been predicting this?) it will be because the next Norman Borlaug doesn't come along because government gets more involved.
If people starve it won't be for lack of oil (lots of natural gas yet), or lack of tillable ground (lots of that too), it will be because of crony capitalism and/or a government takeover of the means of production.
Great plays, till the next mass extinction occurs. Perhaps not in our lifetimes, or perhaps sooner than we think. Hedge your bets in your own backyard
Going long oatmeal, physical delivery in six gallon pails in sealed mylar bags with oxygen absorbers.
To the starving man gold has no value unless it can be exchanged safely for food. Food and water first, silver and gold further down the list.
Better freeze that oatmeal for 3 days to kill the bugs.
I just tossed out 4 42oz barrels of quaker oats. Bugs came flying out when i opened the package. Opened the rest and found more bugs. Same thing happened with Cup of noodles.
all were factory sealed.
All standards are going down.
Good advice, but the prior poster said mylar bags and oxygen absorbers. That should deal with the bugs.
No..intelligence is...
I agree with Economessed. Agriculture depends on oil for fertilizers too. Peak oil is going to cause problems there.
POT 125 puts still look fantastic. Very rarely does POT provide such a clean front month spec play on an op-ex Wednesday; implied volatility is usually heavily inflated. Today's gap open made April 125 P's enticing and March's almost too juicy not to swing a spec at. 125.90 - 125.82 open range inflection and which way mr. potash ... after a 15 min bounce which gap ya wanna fill big guy ?
And this, in a nutshell, recaps everything that is wrong with our current times.
Hedge funders speculating on a global famine should be hung upside-down by their balls.
Rather than buying food and making sure that it is still available when there is a shortage?
Methinks it's people like yourself that need to be hung upside down by their balls.
this is indeed the weakest link in our peak oil dependent ignorant little existence. Permaculture makes the most sense. Greater production, greater diversity of plants which draw up the needed minerals, no till, and the natural insect and plant system is its own organic pesticide. As the article also notes, we're all gonna eat less meat.
Jim Rogers, is that you?
Fertile land is the new Gold; Agricultural expertise the new silver!
Malthus is back!
Wow, am impressed that ZH is covering the water rights situation while many other publications ignore it. Water rights is a very heated argument between some countries as it is desperately needed for crop growth in some areas of the world. ZH continues to impress. Bravo!
Any chance the world population growth will fall below expectations? It really can't go up forever you know. It seems to me like we are bumping up against the carrying capacity of our environment unless the scientists whose burden it is to deliver can whip up something quick and even then, what's after that. Here's a suggestion. We should start thinking about reducing the population instead of relying on scientists to provide because if we don't, nature will find her own way and she can be brutal.
...this is hilarious, we produce well enough food to feed the planet and the subject is not about doing that, or reducing waste, or building systems that cost MORE but are sustainable (see my above message)...
no the subject is about controlling population - which outside of war and genocide - is pretty much a hard thing to do...since even a 1.8% growth rate gives a 40 year doubling time - fighting the exponential function is not worth it. but don't worry some Kissinger type people are thinking about this ...of that I am sure.
You forgot disease. Something like the black death or spanish influenza would do the trick.
Didn't project mayhem write about the possible evidence that the swine flu was engineered even bloomberg did an article on it http://www.bloomberg.com/apps/news?pid=20601124&sid=ajw2AS.d1wK8
The black swan for gold
It's not that difficult. The demographic bulge will pass on and if governments don't encourage more baby making and immigration to keep the economies growing, the populations should naturally deflate to an easy sustainable level keeping in mind the valid points you raised.
No, it is not hard to do. Many Western nation have a naturally declining population, which would be a good thing. However, because of capitalism every country thinks it must have a young and growing population.
It seems that our policies often are contrary to our interests.
It is not capitalism that mandates this, but pay-as-you-go entitlement programs like Social Security that rely on the young to subsidize the retired.
Growth is a concept of capitalism. Capitalism does simply not work without growth, because its driven by debt that requires interest payments. It is a Ponzi scheme and needs new entries (i.e. consumers) to produce that growth.
Social security, as implemented in the US is a problem, I agree. But simply because of the way it was implemented, not because social security was a problem in principle.
Don't mistake capitalism for usury - charging people for the use of money. The banking cabal (Fed + major banks) make BILLIONS tax-free per year (it would take an email to explain how they pull that off) from charging the US for the use of money.
Don't mistake capitalism for debt creation beyond measure, which is what the Fed and Govt do hand in hand...the perpetual theft of money from people via photocopying for wars and bailouts and corporate subsidies.
Free market capitalism is not what we have here.
Capitalism and free markets are a contradiction. Capitalism is geared towards concentration of means of production and capital in the hands of ever fewer people.
Capitalism is also based on money which has to be borrowed (from a CB). This always is debt, so capitalism is purely based on debt. However, this debt needs to be paid back with interest. So you need to go continually into new debt to pay of the old debt. Thus inflation is built into the system.
What you describe is NOT capitalism. It is SOCIALISM! You think capitalism requires a central bank!? That's like saying people can breath underwater because you saw some scuba guy doing it. You fail to understand that once the air (or in this case, savings) runs out, you can't live underwater any more. We're so deep that we must either rush to the surface and risk getting the bends, or staying in the depths and drowning.
To understand how economies ACTUALLY work, read this: http://freedom-school.com/money/how-...nomy-grows.pdf
Sheer rubbish; capitalism worked very well for centuries with little or no growth and minimal credit from banks; it was the monarchs who borrowed, fought wars, and defaulted. Agricultural innovation was driven almost entirely by the profits from greater efficiency.
It only worked well for some and look where it got us. Judging by the result capitalism is heer crap.
Says the guy typing on a computer.
I'm sure that socialists would have invented the world you see around you much quicker than capitalists did, and they would have done it for free too!
If capitalism had never taken root, 99% of the population would still be serfs. Make no mistake, we abandoned capitalism 100 years ago. What you see happening now is a result of what started then. The savings that we had as a nation accumulated in the hundred years up to that point is now gone, and like an heir who has run out his father's fortune, we don't know what to do, except to try to get another loan down at Mr. China's bank. It's that, or we start robbing the help.
+1. Additing devaluing fiat curreny to the mix is probably the largest contributor to the growth ponzi. One incur volumes of debt to get rid of those fiats before they devalue.
This is a major topic, but we need to move beyond the petri-dish mentality of agriculture to a more network-oriented approach. The petri-dish brought us the idea that if we don't keep the soil fertile naturally - through crop rotation and diversity - we'll just dump chemicals on her...and if that don't work we'll change nature completely. It is literally a propeller head approach.
We need designers, who understand how to design in complex environments ....a lot more to be said but watch this Ted Talk on how they are doing this with fish to revitalize a resource and create a powerful system that can develop fish that is certain to go extinct. I know the petri-dish folks are building fish farms, this thesis argues that is entirely the wrong method. Hopefully people in big-Agra are seeing these things and thinking about them...yet design is hard, petri-dish is easy.
http://www.ted.com/talks/dan_barber_how_i_fell_in_love_with_a_fish.html
"It is possible that genetic engineering, sustainable farming, and smart irrigation could lead to a second green revolution, but the burden is on scientists to deliver."
Excuse me, but this is just kicking the can down the road. If the Earth's ecosystem doesn't collapse with 9bln people it will with 10bln or 11 or 12.
There is a limit to growth. The sooner you get that the better. If you go beyond that limit you will just destroy the basis on which the existence of the human race depends. The result: Lots of people will die. Knowingly continuing on this road is nothing but economic genocide.
That's deflationary right?
Ah yes, agriculture and cash crops. The industry sector that is almost entirely dependent on diesel fuel for growth and development. Quite a position to claw your way out of in an era of peak oil.
As in almost every industrialized sector, the solution is not finding ways of scaling it up, it's all about scaling it down, and the entrenched monopolies will fight and claw and resist with every bribe they can pay to the political establishment to hang on to their "entitlement."
Food security = grow your own.
Imprimatur. The social and geopolitical implications of the above are also staggering.
Great post, I hit the fifth star. "Is Food the New Distressed Asset?" Yes, it is THE distressed asset (along with gold, silver, water, oil, and arable land). However, as I do have a side of my family in the hippie brethren, I have to discuss a few things. First, "genetic engineering"....this will totally wreck the food's genomes as we know it, and is harmful to ingest/digest. 2nd, even though I was quite aware of Ags ability to post profit, I have to say, unorganic fertilizer will do more harm in the long run than any good it could do short term. MHFT, please understand, I enjoy the post, not only for debate purposes ("global warming"?), but also because this topic WILL be a main one as in the future (at least once 'Merica wakes up hungry, wondering why the Doelarr menu is no longer, and the $10 menu has taken its place). Once again, great post! Yet, I had to critique....well shucks, ZH is FC anyway.