Tilting the Odds in Your Favor

Jim Rogers, renowned investor and author, is convinced agriculture will be a future economic boom area.  He believes there will be further food shortages.  He also thinks there will be opportunities for hard workers because no one wants to farm land.

“If you want to invest in agriculture, the best thing you should do is become a farmer,” said Rogers.  “Buy yourself some land and become a farmer if you’d be any good at it – or even if you’d just be mediocre at it – because there’s going to be some fortunes made in agriculture and when an industry breaks full faith even mediocre people make a lot of money because everything is going right.

“So if you really want to make a lot of money, that’s the best way to do it.  Alternatively, you can buy land and lease it out if you can find a good farmer.

“There are other ways to make money in agriculture, of course.  You can open a chain of restaurants in the agricultural areas of the world because the farmers are going to be much more successful in the next 30 years than in the last 30 years.  Or open shops.  Get the Lamborghini dealership in the Midwest.  There’s more than one way to make money in agriculture.”

Indeed, there’s more than one way to make money in agriculture.  However, for the average fellow, opening restaurants or high end car dealerships in the Midwest aren’t always real options.  But there are options out there that just about everyone can take advantage of…

How to Buy Low and Sell High

Take wheat, for instance.  It is possible to profit from a price increase in wheat without becoming a farmer…or even buying a farm.  You don’t need to directly invest in the futures market either.

All you have to do to invest in wheat is buy shares of the Teucrium Wheat Exchange Traded Fund (NYSE: WEAT).  This ETF trades on the New York Stock Exchange and tracks the prices of wheat futures contracts.  Here’s a review of WEAT’s recent price movements…

Between September 21 and December 18, 2014, the Teucrium Wheat ETF (NYSE: WEAT) jumped from $10.64 to $13.97.  A 31 percent increase in just three months.  Since then prices have slid back to $12.01.

Nonetheless, if you’re willing to consider it, this recent price decline could be the setup for a prescient buying opportunity.  WEAT’s price peaked several years ago, on September 9, 2012, at $25.38.  Since then its price has stumbled and slid down a long drawn out slope.  The current price is down 50 percent from the 2012 high.

This would suggest today’s price is an opportunity to buy low.  To the contrary, the S&P 500 is up 200 percent over the last six years.  Obviously, if you want to buy low and sell high the current trade is to sell the S&P 500 and buy WEAT.  But there’s another reason WEAT could get a boost this year…

Titling the Odds in Your Favor

Late last year, as the Russian ruble’s decline on international currency markets gained momentum, Russian wheat exports reached record volumes.  The cheaper ruble gave Russian exporters an advantage.  The inherent value of the wheat also acted as a hedge to rapid currency devaluation…culminating with the 19 percent 24-hour freefall on December 16, 2014.

Of course, the Russian government couldn’t allow the mass exodus of wheat from its borders.  Not unless they wanted their currency crisis to also turn into a food crisis.  So they effectively suspended wheat exports in late December with an imminent duty on shipments.

“The wheat market is very bullish because of the Russian situation, food prices in Russia have risen sharply,” said Kaname Gokon, general manager of research at brokerage Okato Shoji in Tokyo.  “Russian government is restocking domestic wheat supply and this is likely to reduce exports.”

The Russian Federation is the world’s third largest wheat exporter after the European Union and the United States.  Obviously, when you subtract a large component of the expected wheat supply from global markets the remaining supply becomes more valuable.  The price of wheat should rise to offset the reduced supply.

Naturally, there are no sure bets when it comes to speculating on the price of food.  Perhaps there could be a bumper crop that keeps prices down.  On the flipside, a polar vortex could hit the Midwest and decrease yields giving prices a secondary lift.  You never know.

Still, buying when prices are depressed and supply may be limited because of government meddling seems to tilt the odds in your favor.  We’ll keep an eye on things as the year progresses and update you on how things are going.


MN Gordon
for Economic Prism

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