• 539 days Will The ECB Continue To Hike Rates?
  • 539 days Forbes: Aramco Remains Largest Company In The Middle East
  • 541 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 941 days Could Crypto Overtake Traditional Investment?
  • 946 days Americans Still Quitting Jobs At Record Pace
  • 947 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 951 days Is The Dollar Too Strong?
  • 951 days Big Tech Disappoints Investors on Earnings Calls
  • 952 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 953 days China Is Quietly Trying To Distance Itself From Russia
  • 954 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 958 days Crypto Investors Won Big In 2021
  • 958 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 959 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 961 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 961 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 965 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 966 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 966 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 968 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

2014: Agri-Commodities Prices Winning

Or, how long does it take the Street to identify an elephant in the room? Apparently the answer to that question is a time period longer than should be the case. As portrayed in the chart below, Agri-Food prices have been rising fairly dramatically thus far this year. With an average gain of about 10% since the beginning of the year, eating is becoming far more expensive. Rather than a short-term phenomenon, higher prices for Agri-Foods over time are part of the future, an unavoidable one.

Agri-Food prices 2014 % Change Chart

Schmist Agri-Food Price Index Chart, Soybeans Chart and US Cash Broilers Chart

Prices rise for Agri-Foods when demand grows faster than supply. The world wants to eat more dairy products, butter included, and broilers, or table chicken. Supply simply does not respond in short-term to that increased demand. Response to higher demand by the marketplace is simply to raise prices for the commodity. A milk cow does not check the internet each morning for wholesale price of butter, and decide to produce more milk fat in response to higher quotes. And you can be assured that laying hens to do not try to lay more eggs when chicken prices are rising.

As chart to right portrays, prices for Agri-Commodities have been rising for quite some time, and recently reached a record high. That history suggests that something different has been happening with Agri-Commodity prices. That something different is that world demand for food is beginning to bump up against the world's long-term ability to supply food. Higher prices for beef will not change the reality that it takes about nine months for a calf to be born. The internet cannot change that fact. Higher prices for Agri-Commodities will not create another acre of arable land in either China or the U.S.

In top chart prices per pound for U.S. broilers, table chicken, are plotted. Those prices recently hit another new high. Chicken is both a price bargain relative to beef for consumers and an economic bargain to the world. To produce a kilogram of chicken requires slightly more than two kilograms of grain while with beef thirteen kilograms are required. (Agrimoney(2013), p. 150) Higher demand for chickens means that demand for feed grains should rise. As the price of soybeans shows in the second chart, strong global demand for animal feed has pushed up the prices of soybeans. Regardless of growth rate of China's GDP, the chickens in that country still eat every day. More than half of soybean harvest is destined to become chicken feed. Soybeans

And we can assure you that the internet cannot produce a single soybean. Still requires a farmer in the field using equipment, fertilizer, and seed. Still requires someone to gather, process and move those soybeans around the world in order to feed global consumers. In that process money, our real interest, flows from consumers to farmers. Agri-Equities are the ultimate benefit of this flow of money, and they remain largely ignored by the investment community.

 


Ned W. Schmidt,CFA is publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food Super Cycle, and The Value View Gold Report, a monthly analysis of the real alternative currency. To contract Ned or to learn more, use either of these links: www.agrifoodvalueview.com or www.valueviewgoldreport.com

 

Back to homepage

Leave a comment

Leave a comment