Stocks For Cashing In On The Soft Commodities Boom
Post on: 24 Апрель, 2015 No Comment
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Stocks For Cashing In On The Soft Commodities Boom
By Bob Kohut | 23.04.2012
Here in Australia many of us think of commodities as those things that can be mined from beneath the earth, and now the sea floor. Australia is blessed with commodities like oil, gas, uranium, and gold, but in todays frightening economic climate, we should not overlook the soft commodities those things that are grown from the earth rather than mined from beneath it.
Worldwide there is a growing survivalist movement, populated by those who believe a global economic calamity is looming on the horizon. Although theirs is an extreme view, hardly anyone who reads the business news does not have concerns about where we are headed. Investors who have not fled to the purported long term safety of gold are looking for safe havens. Soft commodities may be the answer.
When times get desperate, countries can stop building bridges and roads but their citizenry has to eat. Short of world chaos, the growing middle classes in emerging market countries like India and China are no longer satisfied with a diet of rice and vegetables. They are increasingly looking to western foods, like beef, lamb, and dairy products.
The vast majority of Australians are well aware of the resources boom in hard commodities over the last decade. The following chart compares the commodity price index for food against commodity price index for metals:
Note that while food prices collapsed along with metal prices at the onset of the GFC, they did not fall as far and they began to recover quickly, surpassing pre-GFC levels by 2011. There are other factors besides population growth and exploding middle classes in emerging markets that bode well for continued rise in food prices.
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In a strange twist of fate, agricultural land is now being used to produce foodstocks for biofuels, leading to competition for land use between fuels and food. Regardless of whether you believe in global warming and climate change or not, there is growing evidence of world wide weather related disasters impacting the production of food.
Finally there is the growing presence of speculative money in the soft commodity space. In times gone by such speculators were limited to hedge funds and other private equity firms. Today the advent of ETFs and mutual funds in the space mean that little lady next door to you may very well be an unwitting commodities speculator through her retirement fund!
While there are not many publicly held agri-business firms in Australia, we are an agriculturally rich nation. Australia, Brazil, and the United States go back and forth over the title of worlds largest beef exporter. The following graph shows the rise in prices of Australian and New Zealand frozen beef exported to the US over the last 25 years:
Even though Australia lacks the presence of giant food producers like ConAgra and Dole Foods in the US, there are opportunities in the ASX for investors to cash in on the soft commodities boom. Here are six stocks to consider: