It could only take one or two simple but profound insights to make or break your financial future. But you’ll never hear that from traditional investment advisors – who make their livings giving you complicated – sounding advice and getting you to trade in and out of stocks and bonds – often to generate sales commissions.
Investing is about patience and good judgment, and often, restraint in the face of market gyrations. We say to you “relax” and consider these simple ideas:
“Agriculture investments can provide inflation-proof, recession-proof (and possibly even depression-proof) returns on your money for years to come.”
And in the April 2011 issue of Independent Living, we made a prediction: “1970s inflation manifested itself as a wage-price spiral… This time around, however, global inflation is being led by energy and food prices. So it won’t be the 1970s wage-price spiral that ravages Americans, but a food-price spiral which has already commenced globally with revolutionary consequences.”
Investing in Food Production:
A great way to profit
from government folly,
shifting demographics, and
central banks gone wild…
Veteran investor Jim Rogers said in a recent CNBC interview that over the next 10 to 20 years, the world is going to have massive shortages in everything “including farmers” and food. “I’ll make money in commodities because (increased demand will generate) shortages… But if the world doesn’t get better, then governments print money – and the way to protect against that is to own real assets.”
Food and the inputs (fertilizer, petroleum, packaging, etc.) needed to grow and distribute it are ALL tangible assets worth considering investing in.
We’ve been alerting you to the growth potential in commodities and agriculture – and even the Market Vectors Agribusiness ETF (MOO) as an efficient investment vehicle – for a couple of years. This trend is only strengthening as we head into 2012.
A January article on Yahoo Finance mentions “commodity producers equities” as one of the top five categories ETF money flowed into during 2011. And the top ETF within this category, according to the article, was good old MOO.
Higher Demand Combined with Inflation Push Food Prices Higher
Even with bumper crops of corn and soybeans in recent years, increased demand from China and India – each with over a billion mouths to feed – has made it difficult for American farmers to keep up. According to the USDA Crop Report, 2009 was an all-time record corn harvest of 13.1 billion bushels, and 2010 wasn’t far behind at 12.4 billion bushels. USDA also reported the 2009 soybean crop was a record 3.36 billion bushels, and the 2010 crop yielded 3.33 billion bushels.
Countries in Asia built a rice reserve of 787,000 metric tons by March 1, 2011, to try to blunt the impact of a food crisis in the region, according CommodityOnline.com. Asians who can’t get their hands on rice tend to get annoyed.
The tight supply situation has been affecting many parts of the world. For example, reports say Egyptians spend 40% of their monthly income on food, and Tunisians spend 36%! Do you remember the riots that ultimately led to regime change in Egypt and Libya last year? The chaos in those countries was sparked by food riots in Tunisia.
According to Seth Van Brocklin, “As the dollar declines and food supplies become more strained, expect relative food costs in the U.S. to jump.” And don’t forget that central banks – hell bent on creating inflation to bail out the banks and the global economy – are also causing prices to rise on things that people need.
Federal Ethanol Subsidies Just Ended,
but Price-Increasing Mandates Continue
Recently, congress ended subsidies on ethanol (made primarily from corn in the U.S.). Ending a politically granted subsidy is great news. Politicians have long supported corn-based ethanol subsidies because it’s politically “correct” to help America become “energy independent” and politically advantageous to bribe farmers in Midwestern states. For the past 30 years, however, it was just another political boondoggle.
An International Business Times article put a nice spin on it, “The decision to eliminate the subsidy also reflects the fact that at a time of surging corn and gasoline prices, ethanol producers no longer need the government to nurture their industry.” In other words, commodities prices are extremely high, so corporate farmers and Big Ag can now make an honest profit!
Unfortunately, the ethanol boondoggle has not ended, because the alternative fuel is still mandated to be mixed with gasoline. Requirements to cannibalize important food supplies to create an inefficient fuel source (as much energy is consumed making ethanol as the ethanol itself produces) will continue to put upward pressure on corn prices. And higher corn prices will also put upward prices on related wheat, pork, and other commodity prices – stimulating investment returns on these raw goods as well as farmland.
In 2011, the federal government required by law that 13 billion gallons of ethanol be blended in with gasoline (15 billion gallons by 2015). With a corn-to-ethanol conversion rate of 2.7 gallons per bushel, that’s 4.8 billion bushels of corn going into our gas tanks instead of onto our plates. At a yield of about 150 bushels per acre, every last scrap of farmland in Iowa would be needed to produce a politically correct alternative to gasoline, not food that people around the world desperately need.
You Can Profit From Emerging Food Crises
We’ve often mentioned MOO as a potential vehicle to profit from the growing demand for food production. But there are many other ways to personally benefit from higher food prices, including owning farmland (you can even do it in your IRA).
Investing in food production can be a great form of asset protection and income growth.