FSO Editorials: "Agri-Food Thoughts" by Ned Schmidt 10/03/2007

FSO Editorials

AGRI-FOOD THOUGHTS
by Ned W. Schmidt, CFA, CEBS
Schmidt Management Company
October 3, 2007

Grains prices continue to ride to historical highs on the shifting demand patterns around the world. Led by higher incomes in China and India, a consequence of rapid economic growth, consumption of food will set new records each year for the next two decades. Chart below shows the incremental annual demand for soybeans coming from several nations. Chinese consumption of this miraculous yellow bean is pushing the agricultural system to its limits. If the world attempts to produce more corn for ethanol then less soybeans will be planted. The global agricultural system is not a factory that can dial up more production. Rather, a fixed supply of productive land exists in the world, that is actually declining in size. How many consumer products exist with growing demand and inelastic supply?

In the situation described above two consequences follow, higher prices and higher profits. Agricultural investments are benefiting from these higher prices. For the five years ending with 2006, U.S. agricultural land provided a return nearly twice that of the U.S. stock market. Last month, a carefully selected list of Agri-Food stocks returned over 12%, roughly three times that of the U.S. stock market. With the fading attraction of financial stocks, investors need to seek out those next cycle investments. Agri-Food investments will be a meaningful theme over the next decade. Forward thinking investors should be exploring the massive impact of Chinese and Indian consumers on global markets. Trying to call a bottom in U.S. housing stocks is a silly activity when forward moving investment themes exist.

AGRI-FOOD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To review a recent issue write to agrifoodvalueview@earthlink.net. Ned will be exploring the Agri-Food cycle at The Wealth Expo in NYC, 19-21 October. For information go to www.wealthexpo.net

Please remember that no method is perfect nor is the one running the model.
All estimated returns are for the model portfolio and do not reflect those earned on actual portfolios.