We’re adopting a bullish view toward the agricultural sector. A number of factors lead us to believe that prices of agricultural commodities will rise materially over the coming years. These factors include:
● the effects of monetary debasement as central banks fight to save economies from the effects of CoronaVirus shutdowns,
● supply chain disruptions as a result of the CoronaV shutdowns
● ridiculous government policies and interventions in the free market resulting in shortages
● changing global weather patterns
There are not a helluva lot of positive things one can say about being locked in for weeks on end. Aside from not having any Jehovah's witnesses knocking on my door, what it has done is allow for an even more substantial amount of research to be done. And I can assure you that’s coming off a high base. My wife complains that I do nothing else. Maybe.
I do think it’s been an eye-opening time for the average person who perhaps doesn’t spend too much time to be able to witness what happens when the government is put in charge of or at least has an even greater say in things like the distribution of goods and services. What you get is exactly what any student of history would be able to tell you, you’ll get.
Shortages.
So far none of us are going hungry. However, there is a high probability that hunger will be in the headlines in a big way within the next 5 years.
Beneath still waters the devil is doing his thing Trouble is brewing and the western world can’t, or doesn’t want to see it. As I type these crops cannot be harvested and sown, and cattle herds are being cut in supply. What’s led to this development is unfortunately not likely to fade away and is going to have long-term economic and social implications that few are prepared for.
We want to NOT be in that camp.
In a nutshell.
As you’re likely at this point intensely familiar with. Our analyses of the long-term political and social consequences of what we’re living through suggest that the current crisis is simply accelerating the trends that were underway. These trends in a nutshell are increasing geopolitical tensions combined with accelerating de-globalization, rapid increase in authoritarianism, and populism in western democracies. Independently, they are all inflationary. Together, they represent a potential veritable storm.
Thanks to the government's reactions to the virus we can see more clearly the catalyst for agriculture.
What you are probably not aware of is that we have been mulling over the agricultural sector for a couple of years now. We recognize that the sector has been out of favor for more than a decade. It was and is at levels that make it the cheapest it’s been relative to indices such as the DOW or S&P for decades. However, just because a sector is out of favor doesn’t necessarily mean it’s a good investment unless there is a strong fundamental proposition.
We read far, wide, and varied and kept hitting up against the same stumbling block – how can we possibly forecast the supply of grains coming out of Russia, Brazil, Australia, Europe, and North America? Forecasting production coming out of Australia (close to home) is challenging enough, especially with the floods, droughts, etc. But what of the rest of the world? And Russia, China?
Moreover, it is the seasonality of agriculture that makes it challenging. Let’s say we could forecast what is projected to happen next season with the production of wheat, corn, rice, etc. And let’s say it’s going to be a crappy crop next year with prices rocketing. But what about next year or a few more years out? Our investing style is to position for where markets will be 5+ yrs out – we don’t think we have an edge in forecasting where markets will be less than 2yrs out.
So time and time again we hit a wall. It is so frustrating because experience tells us that nasty long-term bear markets are followed by bull markets that surprise everyone to the upside. However, adding an objective fundamental narrative to this “heuristic” proved elusive… have we not looked hard enough, or is there something else from an upper macro level we're missing?
We suspect we were missing something of the higher macro order and that something wasn’t obvious from the popular narrative.
Then along comes CoronaV….. and everything becomes so much clearer to us. In short,
The story is one of national food security (deglobalization) of food production and supply destruction.
If you want to, you can sign-up for our insider group that meets up regularly to discuss investments here. If you are not satisfied with the above analysis which, is only the first 3 pages of 17-page research, that's okay too.
Disclosure: We hold multiple positions in agricultural commodities.
Disclaimer: We are not responsible for whatever happens to you unless you are a client. Become a client if you want. But it's up to you if don't want to as well, as usual.
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