Agriculture ETFs – Can You Smell ‘Em?

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agri-business, annual reports, Archer Daniels, bank debt, BRF-Brasil Foods, contango, correlation, Deere & Co, emerging markets, ETFs, ETNs, ETPs, farmland, fertilizer stocks, food wastage, frauds, frontier markets, Gain on Biological Assets, inflation, JP Morgan, livestock, Market Vectors Agribusiness ETF, Monsanto, MOO, picks & shovels, plantations, soft commodities, Syngenta, United States Oil Fund, Wilmar, Yara

I don’t believe there’s any need to rush into Agri stocks as an inflation play right now. First, I suspect inflation will take far longer (than many currently seem to expect) to overcome the current wave of de-leveraging. And second, the primary real asset conduit for inflation, via the banks, is always Property – which eventually spills over into Natural Resources, and finally into Agri stocks (inc. soft commodities). Regardless, I still think Agri’s always an attractive asset class, and I’d be perfectly happy to increase my exposure if the right opportunities come along. Let’s recap the attractions of Agri:

– Steadily increasing demand due to global population growth (but isn’t everything..?!)

– Higher demand also (via increased consumption & waste*) due to rising global per capita incomes – basically this is an emerging/frontier markets growth story

– Rising incomes also prompt people to trade up to, and increase demand for, protein (specifically, meat), which requires far greater agricultural resources to produce

– It’s pretty insensitive to the economy: Food’s a high priority in emerging/frontier markets, and developed market food spending (as a % of income) has declined dramatically in the past 30 years. And remember, people avoid reducing calorie intake in downturns, they just make substitutions

– Obviously it requires capex & operating expense investment, but biological growth provides a wonderful (& uncorrelated) investing wind at one’s back

– Finally, of course, it offers a great (later stage) inflation play

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A Game of Chicken

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adjusted earnings, annual reports, blind stock valuation, bloggers, chickens, exceptionals, gypsies, intrinsic value, P/E ratio, Warren Buffett

OK, perhaps it’s time I jump on the blind stock valuation bandwagon – there’s been some good posts/responses out there recently in that vein. I’ve noticed some issues, though, with this challenge approach:  First, a blind stock valuation where nobody turns out to own the stock seems like a v sterile exercise to me. Let me just tell you now: I do own this stock, it’s v bloody interesting, and I promise I’ll be telling you more about it soon..!

So please make sure to post/email your valuation/comments asap – all great encouragement for me to get on with a write-up!

Second, reading some of the challenges, I feel like there’s been some (understandable) confusion, on all sides. Some readers state, for example, a stock’s worth $20 but they wouldn’t pay more than $10 for it. Others peg the value of another stock at $40, but highlight the market would probably pay $80. Others give a range of values. And so on… All these seem a little off-base to me – particularly in the context of a blind stock valuation.