The secular bull market in grain prices, which began in 2007, is set to expand to the rice complex following Thai government legislation to curb production to offset poor rice quality and growing pestilence.
Thailand is the world’s largest rice producer. The Southeast Asian nation sets the benchmark for global prices.
- Dugald Malcolm, Montreal, Canada
For most investors looking to take advantage of the recent bull market in the agricultural sector, playing with individual agricultural futures is a rather daunting task and quite time consuming. Instead, investor usually turn to exchange traded securities which tend to be a lot simpler to incorporate into one’s portfolio.
It’s already conventional wisdom among investors that the end of the Fed’s QE II program ends in June. And with the economy showing signs of life since late 2010, the odds that Fed boss, Bernanke, will unload another firing round, is unlikely unless the economy softens again.
I don’t dismiss another episode, or several more doses of QE; but I don’t think we’ll see QE III in 2011.
Despite some heavy selling across risk-based assets over the past week, gold prices have failed to provide an anchor to diversified portfolios amid the carnage. Indeed, gold has struggled to stay above $1,400 an ounce this week.
Gold won’t make any serious headway until the Japanese yen and the European single currency turn lower. Traders and investors are scrambling to both currencies this month while discharging gold; measured in both yen and EUR terms, gold prices are declining since earlier this month.
Over the last few weeks, agricultural commodities have suffered steep losses. Heading into March, most soft commodities were already hugely overbought, mostly on expectations of further supply shortages in things like coffee, sugar, cocoa, wheat and corn.
The “risk off” scenario has encouraged a host of speculators and other investors to close their positions following a barrage of bad news ranging from the ongoing Japanese travesty, the oil spike and turmoil in the Middle East.
The ongoing human tragedy unfolding in Japan is truly one of the saddest things to witness. The reports I’ve been watching on CNN capture the plight of this proud people and the incredible will to remain calm in what has mushroomed into a crisis of unprecedented proportions. I’m making a personal donation this week and I would kindly ask everyone reading this blog to please do the same; it’s the humane thing do to.
Investors should focus on building their positions in agriculture and energy as the next correction unfolds. Both sectors are near-term over-bought and might have already started a consolidation process since the beginning of March.
Over the next several years, agriculture will dominate the commodities markets similar to base metals and precious metals since 2003. And the energy sector will deliver superior returns spearheaded by the oil services or drillers.
But if I had to make one gamble and bet the farm, it would be agriculture.
- Dugald Malcolm, Montreal, Canada
It sometimes easy to forget, with all the euphoria around the price of gold hitting record nominal highs and money being made trading the yellow commodity, the true purpose for holding as part of a diversified portfolio. It is not to crank up your portfolio returns or make you rich over night – leave that to the gold prospectors and miners. The true reason to have gold is an insurance policy. It is there to protect you against world uncertainty and questionable fiat currency. It is a store of wealth not a speculative gamble.
There’s no doubt crude oil is trading at a “Libyan” premium because of the ongoing civil war affecting that country and the future delivery of its sweet crude. But apart from short-term speculation and a bunch of hedge funds driving prices higher, lofty oil prices are a fact of life – and for good reasons.
If an investor was shrewd enough to bulk-up on oil stocks on February 18, he’d find himself sorely disappointed three weeks later.
Sometimes, an underlying commodity, whose value is determined in the futures markets, will outpace its publicly-traded proxy in the same sector.
Oil prices provide a clear example of how these market-based anomalies can occur, resulting in a short-term deviation of portfolio returns.