Grass Roots Fertilizer Stocks

[KastelCo]

Jubak's Journal4/8/2008 12:01 AM ET
Food-crunch 'fix' won't work

The answer to the world's food-supply squeeze isn't to ban or curtail exports (though that's being tried). The short-term solution lies in seed and fertilizer. Investors, take note.
advertisement
Article Tools

* E-mail to a friend
* Tools Index
* Print-friendly version
* Site Map
* Article Index
* Discuss in a Message Board
* Digg This

By Jim Jubak

Starve thy neighbor.

It leaves something to be desired as moral advice. It's pretty bad economics, too.

The recent decisions by Argentina, Russia, Vietnam and others to limit exports of wheat, rice and other grains won't stop runaway food inflation in those countries. It will, in fact, prolong today's global food-supply crunch. Speculators, however, are cheering because the less grain there is on world markets, the more hoarding and panic buying will drive prices higher.

The only long-run solution to the global shortage of grain and other foods is to increase supply. That's going to take lots and lots of fertilizers and other agricultural chemicals and new varieties of higher-yielding seed. Investors can count on an additional decade of good times for stocks such as fertilizer maker Potash of Saskatchewan (POT, news, msgs) and herbicide and seed giant Monsanto (MON, news, msgs).

If investors are very lucky, the current bear market might even deliver a sell-off in these shares that would provide a good entry point. But, unfortunately, share-price action of the past few months suggests that's unlikely.
Inflation by the slice
The likelihood that starve-thy-neighbor policies are going to drive up the price of grains and other foodstuffs isn't exactly good news, coming on top of stunning increases in grain prices.

On April 3, corn for May delivery closed at $6 a bushel; a year earlier, May corn closed at $3.46. That's a jump of 73%. In the same period, the price of a contract for soybeans for May delivery climbed to $12.57 a bushel from $7.63, an increase of 65%, and wheat soared to $9.35 a bushel from $4.20, a 123% gain.

No wonder my neighborhood pizza guy has raised his price for a plain cheese slice twice in the past two months by a total of 50% -- or that a baguette at my local bakery goes for 16% more than it did a month ago. Come to think of it, looking at the jump in prices on the commodities market, it's amazing that a slice costs only 50% more.

But while a jump in price like that is painful to me, food inflation is literally life and death for hundreds of millions in the world's developing countries. In February, food prices in China were up 23% from February 2007. In a year, the price of pork climbed 63%, vegetables 46% and cooking oil 41%.

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24485258