Investors are still adapting to the world of investing in commodities. In the world of paper equities, news is often important. A new phone is indeed actionable information that markets should discount. Investors have become accustomed to trading stocks based on such bits of news. However, they have not yet learned to discern news noise from real news on commodities. Agri-Foods have a seasonality to both availability and prices. That seasonality arises because of the planting and harvesting cycle. In between, comes the weather which often makes difficult the forecasting of supply. Most weather news is news noise rather than real news. Weather "news" is always reversed. Changes in crop forecasts are also largely news noise. Investors, as differentiated from commodity traders, should focus on the long-term positive trends in Agri-Foods, rather than news noise. For example, anticipation of the harvest cycle in Agri-Food creates a period of optimism, that the harvest will indeed occur. Often that anticipation puts pressure on prices, creating an opportunity for investors.
This week's chart is of a stochastic oscillator for the Schmidt Agri-Food Base Index. The season of optimism has again created a period of opportunity in Agri-Foods. Some crops will do better than last year, and weather may hurt others. The harvest, whatever, will not be sufficient to overcome the rate of trend growth in global demand. As shown in June issue of Agri-Food Value View, world will end coming crop year with still only 1.8-1.9 months of grain consumption in storage. Any time in coming years, world will be only one crop failure away from an empty grain bin. Nations importing significant amounts of Agri-Foods are most vulnerable, as witnessed with rice. Those investors that now anticipate continuing global short situation in Agri-Foods may find their wealth benefiting from the real news.
AGRI-FOOD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To review a recent issue, write to firstname.lastname@example.org.