Unstructured Finance

Agriculture funds make hay…

There’s potash in them thar hills… and maybe sometime soon we’ll be wondering aloud whether potassium carbonate (thanks: Wikipedia) can push on to $2,000 per ounce. In the meantime, the buzz around fertiliser stocks has driven agriculture funds to some eye-catching outperformance.

We’ve taken a look at performance in August among equity funds available to buy in Britain. Stuart Winchester’s Thai equities fund is putting others in the shade, and a few gold funds are dotted about near the top of the rankings, but we liked the story behind the agri funds’ outperformance, riding on the back of a wave of M&A activity. You can read the story here.

There are some people here who dismiss the rationale behind the love for fertiliser stocks and the grander macro themes of wealthier emerging market populations requiring more food and meat, but Bryan Agbabian at Allianz RCM’s Agricultural Trends fund is a long term believer.

“BHP’s move echoes our longer-term fertilizer thesis as well as our belief that softening in grain prices is largely behind us,” he tells us via email. “More specifically, BHP’s offer recognizes the growing need for yield-enhancing agricultural inputs, particularly in Emerging Markets where Potash has significant exposure; Potash mines are considered to have the best potash ore with the lowest production costs. Continued population growth, urbanization, and income growth will continue to drive robust demand growth and the need to maximize the productive capacity of the world’s limited supply of arable land.”

In short, the agri funds reckon this is just the start of their grand ascent.

“While shorter-term opportunities exist, we believe agriculture funds should be viewed as long term opportunities deserving of stable allocations,” Agbabian continues.  ”Long-term, we believe global population growth and rising incomes, particularly in emerging markets (EM), has led to changes in how much, what, and how the world eats.”

Check Out Line: Summit highlights

Check out some of the latest news from the 2010 Reuters Food and Agriculture Summit.

NCBA Forrest RobertsForrest Roberts, CEO of the largest U.S. cattle group, said China represents a potential $100 billion market for beef.  Meanwhile, agricultural analysts expect to see increased wheat competition from the Black Sea region.

Health trends were also a hot topic.  Like many of us, there are certain not-so-good for you foods that even the most athletic CEOs won’t stop eating.  Hmm, maybe so many of them are runners so that they can eat these treats without feeling guilty?

Why are commodities risky assets for investors?

Recently I received an email asking me to explain why commodities are risky assets. ”I would think energy and raw
materials would still be in demand, even if Dubai defaults,” the writer said.

 It’s a good point. People need to eat, drink, drive and live. They can’t do it without commodities.

 But for investors commodities are risky. That is because they mostly invest using commodity futures, which are subject to
wild price swings because they react strongly and immediately to demand and supply news and changing expectations for the future.    Since commodities became more popular with investors they have also become highly influenced by market sentiment and macro economic indicators and that’s why they have been moving alongside equities.

But will shareholders back hunger fight?

The world needs to spend $83 billion a year to ensure it can produce enough food amid a changing climate for its growing population by 2050, the UN’s Food and Agriculture Organization estimates.
    
Rich countries have pledged more than $22 billion over three years to help small, impoverished farmers grow and sell more by investing in seeds, fertilizer, roads and marketing infrastructure.
    
GATES/Philanthropists have thrown their weight behind the goal. Bill Gates challenged research companies last week to make new technologies available to small farmers without charging them royalties. (Click on the link at the bottom to see his full speech to the World Food Prize forum.)

Corporations have said they see themselves as part of the fight too, particularly when it comes to research. But Robert Thompson, a former World Bank official, says he’s pessimistic the private sector will be able to contribute enough. “Their shareholders won’t stand for them solving all the problems of the developing countries, and giving it away,” he told Reuters.
    
Thompson“It’s going to take subsidies or at least a public sector contribution to engage their research horsepower,” said Thompson, now an agriculture professor with the University of Illinois, who has pushed for more spending on agricultural development for 40 years.
    
Agribusiness should be motivated to get involved in developing countries because they represent a future growth market for their products, Thompson said. “They should be willing to accept lower return on their own investments as an investment in the longer term, but we have to keep the short time horizon of the U.S. investment community in mind,” he said.
    
“Shareholders are brutal on companies that don’t meet their short-term profit expectations. In that sense, perhaps some of the European companies like Syngenta, BASF or Bayer … may have a little more license, if you will, to take a longer-term perspective than some of the U.S. publicly traded companies.”

Below: Bill Gates addresses World Food Prize forum in Des Moines, Iowa.

Blanche Lincoln and her committee of chairmen

On the congressional scale of measurement, Blanche Lincoln got a plum of a birthday present — the gavel as Senate committee chairman. She is the first woman to head the Agriculture Committee. Amid the congratulatory banter on Sept 30, Lincoln’s 49th birthday, were reminders of the enduring power of its members, past and present.

LincolnAs Lincoln noted, her committee includes the chairmen of four other committees — Budget, Judiciary, Finance and Health. It is a higher number of sitting chairmen than most Senate committees and allows a useful melding of interests.

Finance chairman Max Baucus and Budget chairman Kent Conrad used their jurisdictions to help write the 2008 farm law, for example, sometimes in seeming competition with Tom Harkin, who passed the gavel to Lincoln and is now Health chairman. Harkin holds a historical footnote for chairing Agriculture twice.

A food czar could bring sexy back to agriculture

It seems if you got a problem in Washington today, you need a Czar to take care of it. And now some powerful U.S. senators believe the agriculture sector should get one to sharpen efforts to feed the world’s poor.
    
foodaid3Former Agriculture Secretary Dan Glickman told lawmakers on Tuesday that too often agriculture takes a back seat to other “sexier” issues in policymaking, but it must be a priority if the country hopes to address global hunger and malnutrition.
 
“It is not a secondary factor,” Glickman said before the Senate Foreign Relations Committee.
 
Senator Dick Lugar, the Republican leader of the committee, supported appointing a White House food coordinator to take on raising agriculture and food aid’s prominence.
    
This “food czar” would be tasked with coordinating efforts between the U.S. Agency for International Development, the U.S. Department of Agriculture and other agencies involved in food aid and agriculture production.
    foodriots
The need for a food czar doesn’t seem as far stretched when considering recent events that have nudged agriculture over into the realm of a national security issue.
    
Soaring food prices last year sparked food riots and led to political instability in some parts of the world. The threat of violence and coups continues as the recession makes it increasingly difficult for even more people to buy food.
    
A food czar could possibly mitigate future riots by improving the United States’ role in making other nations self-sufficient in agricultural production, an area some say the country has failed in. 
 foodaid2  
In fact, U.S. efforts to address the long-term challenge of persistant malnutrition earn an ‘F,’ according to political science professor and author Robert Paarlberg.
 
He said U.S. agriculture assistance to Africa has plummeted 85 percent since the 1980s. “So as things have been getting steadily worse in Africa, the United States goverment has curiously been doing steadily less,” Paarlberg said.
 
A food czar, Lugar said, would have the difficult job of addressing this conundrum.

Photo Credit: Reuters/Luc Gnago (Farmers in Cote d’Ivoire work on a rice field); Reuters/Alberto Lowe (Riot police clash with Panamanians over food prices in Panama City); Reuters/Margaret Aguirre (A child in Ethiopia is severely malnourished due to widespread starvation brought on by drought and soaring food prices)

U.S. soy planting record possible, corn out of reach

U.S. farmers could set a record for soybean plantings this year, topping 2008′s 75.7 million acres. The Agriculture Department will release its initial projection of seedings later this week. Some economists see plantings of 79 million acres (32.9 million ha) given that market prices and production costs currently favor soybeans.

Most expect corn plantings to lose ground as global recession takes the shine off demand from livestock and ethanol. But it would be daunting to break the U.S. corn plantings record even if the biofuels boom were re-ignited.

Corn seedings hit 93.5 million acres (37.8 million ha) in 2007 in a land rush to profit on ethanol. Although it was the largest total since 1943, it ranks 16th at USDA. The largest corn planting on record is a giant 113 million acres in 1932 — 21 percent larger than 2007. It may not give a full picture of corn-growing in America.

The answer is 99,439. Pass it on.

During his first week on the job, Agriculture Secretary Tom Vilsack said no one knows for sure how many people work at the Agriculture Department. Speaking to USDA employees and later to reporters, he used that startling anomaly as an argument to update USDA’s computer equipment.

Like the admonition against saying “never” or “always” during an argument, there could be a corollary: Never say “no one knows” in a bureaucracy.

A USDA employee quickly provided an answer for Reuters: 99,439 fulltime, part-time and temporary federal employees as of Monday based on figures from the payroll agency.

Obamamania missing in farm country

obama1Many U.S. farmers don’t have confidence in President-elect Barack Obama, with many fearing the new administration will not be receptive to the needs of American farmers and ranchers.

A Reuters straw poll of more than 800 farmers at the American Farm Bureau Federation’s annual meeting in San Antonio found 72 percent of the respondents did not believe Obama would have the best interest of the farmer in mind.

Instead of helping U.S. sectors that produce goods for the country, such as farmers, several mentioned Obama would focus on programs that work to even out income and help those that are seeking something from the government.

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