Ag Plays – The Beans or the Business?
by ilene - September 12th, 2010 4:03 pm
Ag Plays – The Beans or the Business?
Courtesy of Joshua M Brown, The Reformed Broker
Farmer Brown here again. One of my key longer-term themes for growth investing is and has been the Agriculture Play for a few years now. The global demographics, while seemingly moving at a glacial pace to the short-term thinkers, are simply undeniable over the intermediate to longer term.
A recent landmark piece of research from Goldman Sachs suggests that stock market capitalization in emerging countries may grow fivefold over the next 20 years to more than $80 trillion. Keep in mind that this is the same research department that nailed owning the BRIC country stocks as the Market Call of the Last Decade.
More prosperity reaching the developing world (a majority of the earth’s population) means a historic shift in the world’s diet from simple grains to meats. The first thing a Third World peasant farmer-turned-industrialist goes upscale on is his food. And once you go chicken and beef, it’s mighty hard to go back to sprouts. Unless you think that globalization and gentrification will reverse, this shift probably represents the most monumental investing opportunity of our lifetime.
The theme is becoming a well-known one, but now we’ve reached the juncture where we must ask the age old question of "What’s the trade?". If there was one takeaway from the book The Greatest Trade Ever, it’s that lots of folks saw the housing and mortgage crash coming, but only a few figured out how to express that awareness into a profitable trade.
The Ag Story is every bit as fat a pitch coming down Broadway for investors as the real estate crash was. The flash food riots that rippled around the globe briefly in early 2008 were likely a mere preamble to something much bigger, but how do we set ourselves up for it? The considerations here are getting the timing right, owning the correct vehicles, staying perspicacious in the event that the winners start breaking away from the pack early and, finally, having enough bases covered that you don’t nail the theme but miss the upside (also known as mis-expressing the trade).
Gradually, there are three schools of thought emerging on how to play the Ag Trade. I will give you a brief idea of what they are and then encourage you to do your own research, as…