Schmidt;s Agri-Food Thoughts 5 October 2012

FISH IN THE LAKE WITH FISH

One of the secrets to successful fishing is to fish in a lake with fish in it. Fishing in a lake void of fish is not likely to be a worthwhile venture, though it still beats a day of work. That simple reality is something much of the investment community has never really understood. Even today, twelve years after the internet/technology bubble burst, the Street is still attempting to resurrect that tired old theme. For twelve years, the Street has been fishing in a lake without fish.

Fishing in a lake with lots of fish improves one’s chance of catching a fish. In the chart below is portrayed a lake that has had lots of fish in it. In fact, every fish in this lake has been bigger than that produced by the S&P 500. Do not seem to remember a Street guru recommending barley. As you were planning for retirement, did any of the experts you consulted recommend raising a few chickens, or broilers, in the backyard rather than the stock market?

Once one finds a lake stocked well with fish life is much easier. One never has to read another article filled with drivel on social networking sites. One never cares whether or not the map of Algeria works on a smart phone. One also realizes that talking to your telephone just might be an indication of a serious medical condition, not a life changing innovation.

The North American drought has now demonstrated how really tight the global Agri-Food situation has become. Twice in a three-year period negative supply events have sent grain prices higher. That could only happen in the surpluses of decades long gone no longer exist. The supply of smart phones is unlimited. The supply of Agri-Food is constrained by real world shortages of arable land and water. Smart phones are made in a factory. No factory can produce food.

Those that have been fishing in the right lake seem to have been doing fine the last few years. Plotted in the chart of above is an index of the larger and generally multinational Agri-Food companies. Is this index about to go to a new high? Seems that lake has had a lot more fish in it than where the Street wants you to fish. So next time the phone rings with one of those phone calls about an exciting new offering of a social networking stock, just tell them your are going fishing instead.

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