Schmidt's Agri-Food Value View Thoughts 14 September 2012

TOO MUCH CORN FOR THE BULLS

Most investors never heard of WASDE until recent years. With origins in the need for an understanding of U.S. grain supply during World War I, the first reports were created that came to be WASDE. The USDA’s report, World Agricultural Supply and Demand Estimates, has become one of the key reports for investors and governments around the world. WASDE was the fuel, along with the weather reports, for the recent rally in Agri-Grains.

However, this week’s report may have had too much corn for the bulls. Traders and journalists, two poorly informed groups, did not find more fodder for the corn bulls in the report. The key number is the size of the corn inventory at the end of a crop year, in the case of corn 31 August 2013. That estimate was raised, not lowered as the corn bulls had expected, by 80 million bushels, or ~13%. Seems the USDA found that U.S. had 60 million bushels more on hand than originally thought.

Real story in WASDE, that went unnoticed, was soybeans. Most Western consumers will eat some soybeans every day of their life, but yet may never see one. World produces about 260 million tons of soybeans. At the end of the current soybean crop year, 31 August 2013, the world will have only 2.4 months of soybean consumption remaining in the bins. In the U.S. the soybean situation will be approaching critical. USDA forecasts that the U.S. will have only 26 days of soybean consumption available next August. Little wonder soybean prices have risen dramatically this year, up 49%. That gain exceeds all other widely consumed Agri-Commodities. Forget iPhones, think soybeans. Vegetable oil price could rise dramatically next year.

In the above chart notice that soybean prices had been flat, after having risen strongly in 2010, and then drifted off. That pattern was experienced generally by most Agri-Commodity prices. Agr-Equity prices generally followed a similar pattern, as shown in the following chart.

The consolidation of Agri-Equity prices ended at last year end. However, the subsequent rally faltered as the Street turned to becoming rich in Zinga and Facebook. Recent grain rally and other events have now pushed the Agri-Food Stock Index to a new short term high, as highlighted by the oval in the chart. That action is encouraging given the stochastic was over sold and has now risen for the second months. More than grain rally seems at work here as suggested by the bottom chart.

Many missed out on the glory of Facebook, and for that most are happy. Rather than wait for the next woofer from the Street, researching Agri-Equities might be more beneficial to your retirement. As those crazy Gold bugs said at $1,000, the good part is yet to come.

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AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Agri-Energy. To contract Ned or to learn more, use this link: www.agrifoodvalueview.com