TheStreet.com's Jim Cramer says the bull story here has more causes than just a weak greenback. Better seeds and more fertilizer. That's it. Those are the technology weapons in the war against food shortages caused in the short term by a worldwide obsession with biofuels (we are the worst offender, of course) and in the long term by the increased affluence in China and India, which leads to more nutritious, protein-filled diets.
Both forces, when combined with worldwide droughts and failed harvests, not augmented by the U.S. -- we are late to start with our corn season -- are driving prices up to ridiculous levels. I have no doubt that if tomorrow the president of the United States said he was suspending the biofuel mandates for ethanol that we would see a collapse in food pricing. But I also have no doubt that this inept administration could never figure that out.
So, the solution comes to all of the stocks that were crushed yesterday: Monsanto (NYSE: MON) (Cramer's Take), Potash (NYSE: POT) (Cramer's Take), Mosaic (NYSE: MOS) (Cramer's Take) and Agrium (NYSE: AGU) (Cramer's Take). Without better seeds that produce higher yields, without more fertilizer that increases yields, we are going to be facing a long-term continuation of these price increases and the attendant inflation and food riots. Inflation, by the way, that has nothing to do with the Fed, unless the Fed is also a big granary hoarding wheat and corn.
The shortage didn't happen overnight. We have been over-inventoried for years in this country and around the world. We had grain storage that was so high for so many years that farmers sold land or it lay fallow. It wasn't worth it to produce.
But the increase in oil, the food-for-oil mandate of President Bush, continued even more aggressively by Obama and Clinton -- we have no idea where McCain stands, as his politics seem more of a global cooling initiative -- and the lack of inventories have produced the monstrosity that we have now.
To be sure, the ethanol mandate is controversial. Potash, on its call yesterday, said that biofuels account for only 5% of world demand and the raw cost of food is only 20% of the cost of the packaged goods you buy in stores. They blamed most of the increase on the India/China/Asia affluence theory and the need to feed more chicken and beef to meet middle-class demands for protein. However, the incremental 5% is huge when the incremental inventories in granaries are now exhausted and the world has a food imbalance. Particularly because what's happening is biofuels are screwing production away from some grains, causing others to shoot up, including rice.
I go into all of this simply for one reason. Yesterday all of these stocks were down. The immediate causes were press reports -- ones that have largely been wrong by the way -- that the dollar will bottom because the Fed is done, as if the dollar were controlled by the Fed and not our massive budget deficits. That triggered a decline in gold, which then sent the "signal" that commodities had topped, which then led to the selloff in ag. Now let me ask you, in the whole panoply of things I just outlined about what caused food prices to go up, was there anything in there about the weak dollar? Maybe an incremental price increase in oil? Dubious.
The food issue has three cures:
1. better harvests, which you can get from good weather, better seeds and more fertilizer;
2. more plantings, which, amazingly still hasn't happened yet; and
3. the end of the ethanol obsession, a universally reviled fuel in this country because -- unlike in Brazil, which is fully committed -- we don't have the buy-in of the auto companies, the gas stations or the people. We just have the government and the voters of certain ag states and an amazingly powerful farm lobby.
Is that a reason to sell POT, Deere (NYSE: DE) (Cramer's Take), MON, Bunge (NYSE: BG) (Cramer's Take), MOS, AGU and the like? Or to buy 'em?
You decide.
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.
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Reader Comments (Page 1 of 1)
4-25-2008 @ 9:41AM
Michael Schneider said...
In the end even if the problems in food continue (which I agree is likely) it doesn't necessarily mean all the ag stocks will keep rising. In the 1990s the Internet stocks had good stories and the net keeps growing but we did have a strong correction in those stocks when they just got way ahead of themselves and people were falling over each other to buy anything related to the net. I'm not saying that commodities are in a bubble at all but there are some reasons to expect corrections and the market may be due for one. Last year there were droughts and bad crops in many areas that produce wheat which sent the wheat price sky high. It has since pulled back as this year looks like the harvest will be better in places like the Ukraine and Australia which usually produce a lot of wheat (Hence the Ag ETF DBA may not work right now). Last year we had a huge move to plant more corn but this year's crop report showed farmer's moving toward more soybean plantings and the current weather situation in the Midwest is favoring soybeans over corn This could mean corn prices will go higher but the beans may decline and soybeans require less fertilizer than corn so more soybean planting means less fertilizer use tempering the strong bullish case for those stocks. There is a lot of fast money coming out of ag stocks now. Agriculture is still a good area but corrections in commodities can be severe and if the old Wall Street adage about trees not growing to the sky is valid perhaps it is also true of corn. Individual investors who do not have a lot of room for loses in their portfolios may need to be cautious here and look for undiscovered stocks or good times to buy.
There are many items on agricultural commodities in the Agricuture Commodities section, the Spotlight section and the Channeling Jim Rogers section at http://www.Barrelomoney.com.
4-25-2008 @ 11:24AM
Danny W said...
The stock market is completely crooked. And this guy is one of the dons,he is a LIAR a CROOK,and a THIEF. And absolute shame on AOL for giving this LIAR a sound board to keep pumping out the LIES and DECEIT.
In todays market a stock only goes up when you make huge losses have a good quarter and a crash is guaranteed.
4-26-2008 @ 3:44PM
Zach Bass said...
It appears to me that the big money is in the process of rotating out of commodities like agriculture and precious metals, and to some extent oil. In the later part of last week there has been a rather large drop in the CRX off its highs. Normally when you see such a big move, it's an indication of sector rotation. I think AG and MOS have been played out.
Where's the big money going to? Financials, transportation and clean energy. I was temperate on oil, because of the recovery on Friday, but I believe that to be temporary, the last 20 dollars in the price per barrel has been pure speculation. Once the sector rotation gets underway, you'll see oil drop as well.
-zach bass
http://www.zachbass.com
4-26-2008 @ 4:00PM
Zach Bass said...
I should add that the technicals on DE, AGU and POT all show big moves off their highs, finding big resistance on their uptrend lines. There has been some recovery on Friday, but I think that's just a knee jerk reaction, and on small volume to boot, compared to the high volume on the drop off the highs the previous two days.
So, I'm not so confident that we'll see any good action out of Agi in the near term.
-zach bass
http://www.zachbass.com
4-29-2008 @ 2:10AM
Marc A. said...
I agree that in the short term the Ag plays might head lower as they got extremely overbought. However, I wouldn't compare the Ag sector to Oil and Gold. Gold is currently a pure play on the US dollar and doesn't get affected by the soaring demand for better and healthier food in the Emerging markets like China or India.
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