Pounce on Grain Infrastructure after Next Correction

Montreal, Canada

Corrections and stock market dislocations should be used to aggressively accumulate the entire grain investment theme in 2011. No other sector in the commodity markets offers a more attractive risk-reward scenario going forward with supply and demand likely to reward investors.

The majority of stock indices and sectors are up sharply since the market hit a low back in July. That includes the entire grain infrastructure theme, which, I think, will dominate the performance charts over the next decade. Markets worldwide are generally heavily overbought as measured by both technical and market sentiment indicators.

The Market Vectors Agribusiness ETF (NYSE-MOO), which I use as a proxy for this sector and includes agriculture-related stocks, is down about 22% from its highs in July 2008. In stark contrast, gold mining stocks are only 5% off their all-time highs.

In fact, you could say the grains and peripheral trades surrounding this compelling sector might replicate what gold and silver have done since 2000 or crude oil since 1998. There’s certainly no “bubble” in the grains complex at this point; some companies in Europe have already launched agricultural funds offshore (Pictet and Blackrock) but for the most part, it’s still an obscure idea for most portfolio managers.

Longer term, agricultural commodities will post big gains for investors. Rising populations, plunging water tables and booming demand from Asia all imply structural supply-side deficits are colliding with rising demand. This has the potential to explode, resulting in chaotic markets and ultimately some sort of government interference as price controls are introduced.

My big push in 2011 for Commodity Trend Alert (CTA), entering its ninth year of service shortly, is the grain infrastructure theme. This is home to the next secular bull market in the 2010s. Ride it.

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