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A Food Crisis Is Imminent - Invest Now

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A Food Crisis Is Imminent - Invest Now

Written by Aaron Hoddinott
Pinnacle Professor
July 14, 2011
Categories: agriculture stocks, Commodities, food crisis, Mining



www.PinnacleDigest.com
Crises can make investors fortunes. Some of the most profitable investments are found in times when human needs are at stake and desperation is involved.
We’ve seen an oil crisis (and will likely see another very soon) which made billions for hedge funds, investment banks and retail investors when it ran to nearly $150 per barrel. We will see a water crisis in the future creating a similar profitable scenario. We are witnessing the start of a debt crisis that is making speculative lenders billions in returns on interest alone. But, the biggest and most worrisome near-term crisis of all, is a food crisis; and you will have the opportunity to make a ton of money from it.
Anytime there is a crisis, opportunity to profit is inevitable for those with the foresight to see it coming. Speculators love crises as well, and only add fuel to the fire, which multiplies your gains.
The writing is already all over the wall for a pending food crisis; the west just hasn’t seen it on a domestic level yet, but believe me, we will. It’s time to get ahead of this trade.
Did You know wholesale food prices have doubled since 2004?
Did you know there has been a major global movement from many leading nations to acquire foreign farmland in an attempt to attain food security?
The world’s population is now at 7 billion people. It has doubled since 1968.
40% of the world’s population is under the age of 25. This is a very critical statistic as over the next 15 to 20 years, 2.8 billion people will be entering their peak earning years. Most of these 2.8 billion people (particularly in China and India) will grow up much richer than their parents as they are what we call ‘the rising middle class in developing nations’. And with a rising middle class in developing nations, comes a demand for higher-end foods such as meats and dairy that we in the west take for granted. This will put a significant strain on world supply (it is already happening, we just haven’t felt it YET). Couple that with the fact that the world is adding 80 million people per year to its population total (that’s more than double the population of Canada) and a food crisis is imminent.
People in Canada and the US are already complaining about higher prices at the grocery store thanks to inflation. The price hikes we have seen this past year will pale in comparison to what is in store for the next few years. Countries are starting to compete (by bidding up) for food. This is going to drive costs to unthinkable levels. Get ready to pay $8 for a gallon of milk. It is inevitable and will happen this decade (milk is just one example).
There is a reason Jim Rogers said farmers will be driving Lamborghinis before long. While we all can’t become farmers, we can certainly invest in agricultural and farming stocks to get in on the big money that awaits this sector.

ForeignPolicy.com reported that “beyond population growth, there are now some 3 billion people moving up the food chain, eating greater quantities of grain-intensive livestock and poultry products. The rise in meat, milk, and egg consumption in fast-growing developing countries has no precedent. Total meat consumption in China today is already nearly double that in the United States.”
It’s only a matter of time until it is triple that of the United States...or more.
The Crisis Is Right Around The Corner
The world population is expected to be over 9 billion by 2050, which basically guarantees a food crisis by that point. However, it is my belief, backed by extensive research, that with a growing worldwide middle-class and higher energy prices, we are destined for a food crisis (within 5 years) if we simply maintained this level of population.
Food prices will rise tremendously over the next few years. And they will rise because of bidding wars, not just inflation. Countries who lack substantial farmland to support their own population will be driving food prices through the roof. This means companies within the agricultural and food sector will see profit margins grow rapidly. I have never found a safer commodity sector to invest in than agriculture.
One Crisis Triggers Another
When oil prices rise, the demand for biofuels increases. Biofuels are, in large part, believed to be one of the three main causes for the shortfall in food supply globally. It is a nasty cycle we find ourselves in. We try and escape higher oil prices only to find a looming food crisis because of it.
ForeignPolicy.com reports that “the third major source of demand growth is the use of crops to produce fuel for cars. In the United States, which harvested 416 million tons of grain in 2009, 119 million tons went to ethanol distilleries to produce fuel for cars. That's enough to feed 350 million people for a year. The massive U.S. investment in ethanol distilleries sets the stage for direct competition between cars and people for the world grain harvest. In Europe, where much of the auto fleet runs on diesel fuel, there is growing demand for plant-based diesel oil, principally from rapeseed and palm oil. This demand for oil-bearing crops is not only reducing the land available to produce food crops in Europe, it is also driving the clearing of rainforests in Indonesia and Malaysia for palm oil plantations.”
Some argue that the use of biofuels is the only culprit for food shortages. While I don’t agree with that (I believe it is three things: growing population and urbanization, rising middle-class and increased use of biofuels), they make a strong case. Since 2004, biofuels have caused demand to double for grain and sugar and nearly triple for vegetable oil.
As mentioned, one crisis triggers another - even within the same sector. What I mean by that is there is only so much farmland on the globe (and it is depleting thanks to urbanization - read past weekly volume byclicking here). When one particular product, such as grain, experiences increased demand, farmers must turn a past cabbage field (for example) into a grain field. This quells the grain shortage problem (albeit temporarily), but triggers a future cabbage crisis. It’s a viscous cycle that pretty much guarantees rising food prices for the rest of our lives.
Supply Side Issues
I’ve explained some of the demand side pressure the agriculture/food industry is facing, but let me touch on the supply side issues as well.
*The agriculture/food sector will make for a perfect case study in explaining why prices go skyward quickly. Pressure on its supply and demand are coming from all angles.
As we explained in a previous Weekly Volume (click here to read), urbanization is playing a large part in destroying fertile farming land and it has disrupted supply flow. For example, on the west coast of Canada, certain land once deemed strictly for farming purposes only, as it was rated to have some of the richest and most ideal farming soil in the world, is now home to highways and neighborhoods. This is happening all over the world.
Other issues effecting supply shortages are soil erosion, which lowers crop yields, other non-farm uses taking over farmland and climate issues such as heat waves and severe cold snaps.
There are so many forces setting the stage for global food shortages and bidding wars in the future.
The Consequences
Food shortages create severe consequences wherever they happen. We haven’t experienced rioting in North America because of food shortages, but that doesn’t mean it won’t happen. If consumers aren’t willing to pay the hefty premiums on food that awaits us this decade, you can bet we will see riots in our streets (hard to imagine, I know). It happened and is happening in several African and Asian countries. The Mexican government has been purchasing corn futures to avoid potential rioting and civil unrest as tortilla prices skyrocket.
Certain developing nations are experiencing a large portion of their citizens spending up to 75% of their annual dispensable income on food. Here in North America, we are spending roughly 10%, but I predict that number to increase to 20% within the next 5 years.
The price wars and competition for food between nations is only going to intensify, which will further drive up prices. Farmland is already skyrocketing in value across the globe which backs-up this prediction.
Certain agricultural products will eventually have export bans put on them as governments will deem them ‘strategic’, much like China has done with rare earths. And we all saw what that did to the price of rare earth elements and rear earth stocks. Fortunes were made last year in the rare earth run-up. I believe food and agriculture stocks will see similar price increases as rare earth stocks did, but it will be longer-lasting and more sustainable.
I expect governments to subsidize part of the expense for certain food products. Prices will become too expensive for many consumers and they will have no choice.
'The food system is buckling under intense pressure from climate change, ecological degradation, population growth, rising energy prices, rising demand for meat and dairy products and competition for land for biofuels, industry and urbanization.'—Oxfam report
*https://www.cbc.ca/news/technology/story/2011/05/31/oxfam-food-report.html
There is more money to be made investing in food/agriculture than any other commodity sector...
And it is a safer, more predictable commodity space to be in than perhaps any other.
The profits in the food/agriculture sector are astounding, yet no one is talking about it. We can thank all of the world’s financial problems for that (as they have distracted investors) and use it as an opportunity to get in the trade before it becomes ‘in-vogue’.
The Profits Are Amazing
According to the UK’s Guardian, there are a handful of players dominating the agriculture and food manufacturing and retailing sector. They’ve been cleaning up for years, mostly under the radar of many investors.
This group of companies is known as the ABCD group.
The Guardian states “US-based Cargill with the highest revenues, is the largest private company in the world – and famous for its secrecy. Its headquarters is a mock-Tudor meets mock-French chateau in Minnetonka in the US mid-west, where the company was founded by a family of grain traders in 1865. Today, it is still majority-owned by descendents of the family. Its main commodity trading operation is run out of the tax haven of Switzerland. Its sales were $108bn in 2010, and $115bn in 2009, and its net earnings were nearly $6bn for those two years.
As well as being a leading player in the trading, processing and transporting of the most important agricultural commodities, fertiliser and meats, it is one of the world largest hedge funds. When Gordon Brown, as prime minister, called a summit in London on the 2008 food crisis, Cargill was invited. When Walker crisps had an image problem with the saturated fats in its crisps, Cargill came to the rescue, having a large acreage of land in eastern Europe planted with a new variety of "Sunseed".
It produces about half of all McDonald's chicken products across Europe. It sells fats to Unilever. When the US needed to appoint someone to lead the reconstruction of agriculture in Iraq, it turned to former Cargill executive Dan Amstutz. In China, where it has a joint venture with Monsanto, to whom it sold its enormous seeds interests a decade ago, it has trained over 2 million farmers in the American way of agriculture.
Over that same decade, Cargill, ADM and Bunge are thought to have acquired about 80% of China's soya processing capacity. More recently, Cargill has been moving up the food chain into high-value, hi-tech additives and what it calls food solutions for the manufacturing industry.
Louis Dreyfus, established in 1851, is also private and still family owned, headquartered in Paris but again trading largely out of Switzerland. It gives no figures and never comments to the media, but its estimated revenues in 2009 were £34bn. It has enormous grain, sugar and energy trading interests around the world, although in recent years it has concentrated on financial aspects of commodity trading.
Bunge, which expanded through the late 19th century as a grain trader in South America, is now incorporated in the tax haven of Bermuda but its headquarters are in the US. Its net revenues in 2010 were $47bn, and net earnings were $2.3bn. It is a leading processor of oilseeds, and producer and trader of grains, sugar and bioenergy. It is also a key player in the global fertiliser market.
ADM, or Archer Daniels Midland, is incorporated in the US tax-haven state of Delaware and headquartered in Illinois. Its revenues in 2010 were $62bn and its earnings were $1.9bn.”
While my approach won’t be to invest solely in the major players in the industry, the revenue figures from some of these giants are astounding - yet most investors have never even heard of these companies.
My strategy in this sector is to invest in mid-tier and small-cap agriculture stocks, as well as ETFs focusing on specific agriculture products such as corn and grain.
The money already being past around in this sector for acquisitions is shocking - that is my reasoning for taking stakes in small-cap and mid-tier producers as they are the most likely takeover candidates.
When this food crisis hits the world, acquisitions in this sector will be something we hear about on a weekly basis. Early bird investors in this sector will be cleaning up.
Now is the time to get in on this trade.
All the best with your investments,
Aaron

Headline from this past week: Severe crisis grips East Africa
"East Africa is facing the worst food crisis of the last 60 years. Across Ethiopia, Somalia and Kenya, more than 10 million people are in dire need of food, clean water and basic sanitation. Loss of life on a massive scale is a very real risk, and the crisis is set to worsen over the coming weeks. Livestock are dying, markets are empty, food prices are rising dramatically and people are starving."
-TheStar.com


This article represents solely the opinions of Aaron Hoddinott and not of PinnacleDigest.com nor Maximus Strategic Consulting Inc. Aaron Hoddinott is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information is of an impersonal nature and should not be construed as individualized advice or investment recommendations.

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Written by Aaron Hoddinott18,715
August 15, 2011 - 09:42 am
Re: A Food Crisis Is Imminent - Invest Now
Another great interview with Jim Rogers about commodities and agriculture investing.
https://www.pinnacledigest.com/video/video-day-august-14-2011-jim-rogers-...


Written by ANA526
July 21, 2011 - 05:12 pm
Re: A Food Crisis Is Imminent - Invest Now
Oh, and Cargill, [sentence deleted by poster] OK Aaron, I'm through. Sorry.


Written by ANA526
July 21, 2011 - 12:41 pm
Re: A Food Crisis Is Imminent - Invest Now
Oh Aaron,
You are so correct about a cartel. It is a corporate food cartel. They don't care about the land. They don't care about the independent farmer. And they are bestial.
Hey Cargill: I am from Terrell County. I grew up there. So sorry you bought out the locally owned peanut industry years ago. You haven't left any old abandoned barrells of anything like banned insecticide in the woods have you? Could leak into the aquifier you know.



Written by Aaron Hoddinott18,715
July 20, 2011 - 02:54 pm
Re: A Food Crisis Is Imminent - Invest Now
I received an email from a member today which corrected Jim Rogers' statement that "farmers will be driving Lamborghinis before long". It looks like they already are!


Link to the website: https://www.lamborghini-tractors.com/en-EN/defaulten.html


Written by Aaron Hoddinott18,715
July 20, 2011 - 02:29 pm
Re: A Food Crisis Is Imminent - Invest Now
ANA,

Thanks for posting that video. I just finished watching it and must say, I find it very disturbing. I think it is safe to say there is a cartel running the food industry and they have strategically positioned farmers in the US to become dependent on them - as well as fear them.


Written by ANA526
July 19, 2011 - 03:46 pm
Re: A Food Crisis Is Imminent - Invest Now
Ah, it worked - but one has to click the words "GM Crops Farmer to Farmer" instead of the photo.


Written by ANA526
July 19, 2011 - 03:41 pm
Re: A Food Crisis Is Imminent - Invest Now

I agree, Aaron. Well said. I think you also hit the nail on the head when you spoke of greed as a motivating factor. I hope this link to this video works. I've never posted one before so here's trying. It is pretty disturbing what these farmers say in regard to GMO vs. conventional seeds.

via Non-GMO Project:




GM Crops Farmer to Farmerwww.youtube.com
For information on this video go to - https://gmcropsfarmertofarmer.c?om/ Michael Hart, a conventional livestock family farmer, has been farming in Cornwall fo...


Written by Aaron Hoddinott18,715
July 19, 2011 - 11:05 am
Re: A Food Crisis Is Imminent - Invest Now
ANA,
I'm glad you brought up GMOs. I was thinking about mentioning some of the strategies the food cartels have been working on to combat this food crisis as a way of demonstrating how desperate the world is for food - but that would have been a whole other report within itself. To me (I am the furthest thing from a doctor or scientist), Genetically Modified Organisms seem insanely dangerous and extremely unnatural. The ecosystem, food chain and geology of our world has a way of balancing itself. When humans start trying to mess with mother nature's biology I think we are headed for severe consequence and new diseases.
Thanks for bringing up this topic. As the food crisis worsens, humans will become more desperate. I think GMOs is a desperate strategy mixed in with greed.


Written by Aaron Hoddinott18,715
July 19, 2011 - 10:51 am
Re: A Food Crisis Is Imminent - Invest Now
Southpen,
Right you are. There aren’t too many micro-caps under a dollar in this sector that have made a significant discovery. Usually, when a good asset is eventually found, the share price spikes and the $1 price point (or below) is quickly gone. The reason for that is simple; there aren’t very many good assets out there, so when one is eventually discovered, the masses move in. It is very much like the rare earth sector in that respect. This is why I believe, within the micro-cap arena, one has to ‘roll the dice’ so to speak (before a discovery is made) on strong management (who has made a significant discovery in this sector before). And don't forget to look for tight capital structures. With this strategy one is certain to find some losers, but one big discovery will make up for every loser and a lot more. This is also why food/agriculture is the one sector (in the resource industry) I would never just invest in the juniors. The mid-tier producers help balance it out as do the ETFs. Many producers also pay a dividend which is always nice - might as well get paid for your patience.
I know investors only have so much money to go around and to invest in juniors, mid-tiers and ETFs it takes a significant amount of money; but with that stated (and some people think I am too risky of an investor), a 25% total portfolio allocation to food/agriculture is conservative in my opinion.
And while I don’t disagree with owning the large-caps in this industry ( I’ve owned MX and POT for a long time), they just don’t excite me enough to really focus on them anymore.
If you find any solid juniors you like, feel free to share them with me on this board. I’d love to kick their tires.

Aaron


Written by ANA526
July 18, 2011 - 08:24 am
Re: A Food Crisis Is Imminent - Invest Now
Thanks Frank, it will be ineresting to see where this goes. My concern is that sometimes it appears that our regulatory bodies seem to be attached to those whom they are supposed to be regulating.

Frank Tabbert won the Stock Challenge once!

Written by Frank Tabbert6,223
July 17, 2011 - 08:48 am
Re: A Food Crisis Is Imminent - Invest Now
Ana, You never cease to amaze me with your knowledge and your writings. I look foeward to more of your written word.Progress is necessary but we are caretakers of this planet and must proceed with caution. We have seen the results of introducing a common species in one area of the world to areas where they are uncommon to control one problem only to create another much worse and these were not genetically altered in any way so the consequences of man's genetically altering experiments with nature could be catastropohic but we proceed with must. PROCEED WITH EXTREME CAUTION.


Written by ANA526
July 15, 2011 - 07:54 pm
Re: A Food Crisis Is Imminent - Invest Now
Hi Aaron,
Thank you so much for your blog. As always, it is very informative and spot on. We are so accustomed to bounty in this country, the thought of a food crisis is foreign to our nature. I would like your opinion on what some think may, in the future, pose an even greater risk to our food supply - and us - than the lack of farmland. GMOs.
As I understand it, each species has a protective barrier that prevents the alteration of its genetic information. A horse remains a horse. A human remains a human. A plant remains a plant. However, there is now, for the first time in the history of our planet, a controversial technology that forces genetic information across this protective species barrier in an unnatural way. This technology is known to us as Genetically Modified (Mutated) Organisms (seeds), or GMOs. It is different from hybrid foods, which actually occur in nature. A genetically engineered seed can, for example, have a pesticide gene inserted into it. Another example, certain potato strains now have frog genes engineered into them to protect them from dry rot.
The concern rests in the fact that there is growing evidence consumption of these mutated foods may pose dangers to the human species. We are digesting genetically altered components which have never before been in the human system. We do not know what it will do to our immune systems. Disturbing results are being seen in libratory rats, and in cattle fed GMO grain.https://www.saynotogmos.org/paper.pdf The USDA does not require that genetically engineered foods be labeled or tested, and they are on grocery shelves everywhere.
I by happenchance, a couple of years ago, met someone in another country who heads an international organization which is against the spread of GMOs, so I guess one could say she was bias. However, the facts she gave and the sources she quoted were sobering.
I hesitate to print here a lot of what she said under advice from my attorney. However, I urge anyone reading this to do their own research on GMOs and the inherent risks to the world’s food supply. There is a lot on the web. One of the things mentioned is that the seeds of genetically modified crops are being carried by wind, bird, etc to traditional crops miles away. These genetically altered seeds are dominant, and where infiltration has happened, the natural crop is altered, and becomes a GMO crop.
It is my understanding that Cargill and Monsanto head the world in research and in the production of GMO seeds. It is also my understanding that their experimental stations are spread throughout the world.
It was her understanding that two corporations which I will not name have stockpiled non-GMO seeds in highly protected facilities. I don’t know that this is true. However, in light of the substantial research and laboratory findings that point to danger, it seems the responsible thing to do. Moreover, in light of it it all, perhaps our country – all countries, should start stockpiling natural un-mutated seeds as well. After all, he who controls the world’s food supply controls the world. That control should not be in the hands of just a few countries - or corporations. I know this sounds a little far-fetched, but...just saying, as they say.


Written by southpen1,300
July 15, 2011 - 04:29 pm
Re: A Food Crisis Is Imminent - Invest Now
The problem I find with this group is that inexpensive ,micro cap stocks are hard to find.All the etf's are big money.I use to be a believer in ADM (an investment club favorite for this sector) but it's too rich for me. I would appreciate anyone presenting a agriculture stock that has real promise under a dollar.Good subject Aaron.

https://www.pinnacledigest.com/blog/aaron-hoddinott/food-crisis-imminent-invest-now