Agri-Foods Alternative Investment to Gold Going Parabolic

By: Ned_W_Schmidt

With $Gold clearly in a parabolic formation, investors may need to realistically appraise their investing activities. $Gold is likely to suffer inevitable consequences of disappointment that follows from a parabolic move. Investors may want to direct their investment flows elsewhere. With Agri-Food prices marching higher, that sector of investment world is an attractive offensive alternative.

On first day of January, barring sanity erupting in U.S. Congress, Great Obama Tax Increase of 2011 will occur. More than $3 trillion will be extracted from U.S. taxpayers, and redirected to non productive, growth killing U.S. government. As a consequence, U.S. unemployment will likely average above 10% in 2011. Canada is selling much to China, but languishing U.S. economy is still Canada's biggest customer. EU offers little, as individual nations strive to reduce their debt burden.

Some countries are fostering growth, rather than destroying the potential for prosperity. Their citizens are earning higher incomes, and joyfully spending that income.

In a recent report on Chinese economy from bloomberg.com, 12 September 2010, we read,

"Production gained 13.9 percent from a year earlier, more than the 13 percent median estimate of 29 economists, a statistics bureau report showed in Beijing yesterday. Consumer prices jumped 3.5 percent, the most in 22 months, as food costs climbed. Retail sales increased 18.4 percent...China is poised to replace Japan as the world's second biggest economy this year after reporting a larger GDP in the second quarter." [Emphasis added.]

Part of those higher retail sales in China are for one our favorite activities, eating. Included in retail sales are the growing number of food, or grocery, stores providing Chinese consumers with an expanding array of Agri-Foods. Due in large part to Chinese consumers, we have happily reported previously that our Agri-Food Price Index recently made a new high!

North American harvest now in process may allow for much needed consolidation in Agri-Food prices. However, continued growth in global Agri-Food demand and ongoing problems with Russian winter wheat planting will continue to cause upward pressure on Agri-Food grain prices. At this time, due to the drought, only about 40% of intended Russian winter wheat planting has been accomplished. World must now wait till 2012 for a "normal" Russian winter wheat harvest. Remember, while substitution is possible, a pizza made with corn rather than wheat will taste a lot like a taco.

Butter, a not very exciting Agri-Food, has experienced a dramatic price rally this past year. Butter prices have nearly doubled in the period of time shown in graph. Those experiencing economic growth in parts of world not encumbered by Obamanomics are able to afford more butter. While we might think of butter as a staple, consumption is both economic and income sensitive. As incomes rise, consumers switch back to butter from less expensive substitutes. They eat more often in restaurants, where butter is more likely to be an important part of recipes.

As the above chart portrays, butter is not the only case of an Agri-Food price moving higher in dramatic fashion. In that chart are plotted 52-week percentage price changes for Gold, sugar, corn, and palm oil. Latter three Agri-Foods have done quite nicely this past year, and substantially better than Gold. In fact, 9 of the 15 major Agri-Food commodities we track have experienced a price increase greater than that of Gold. Perhaps Gold is just trying to catch up with hogs, up 53% in price.

Investors can escape economic malaise being imposed on North America by the Obama Regime, or the tepid prospects for the EU. With retail sales up more than 18%, China's road to prosperity appears far more encouraging than alternative models. Perhaps the best way to participate in China, India, et al growth is through Agri-Food. Regardless of any bumps in the road, their consumers will eat. Agri-Food may have developed what is coming to be called the "China put."

Out of this, one of best businesses? Ones that will build all those garages in Iowa to hold all those new BMWs. Agri-Prosperity ahead will be found with those that have the land to grow it. While Agri-Equities are best suited for most investors, Agri-Land will certainly benefit from China, India, et al outbidding others for Agri-Food output of North America. Our 4th Annual U.S. Agricultural Land As An Investment Portfolio Consideration - 2010 is rapidly becoming the definitive study of returns earned on U.S. agricultural land, http://www.agrifoodvalueview.com/AgriLandAnnual.html

By Ned W Schmidt CFA, CEBS

AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To contract Ned or to learn more, use this link: www.agrifoodvalueview.com.

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

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