Agri-Food Thoughts

Munching sound in back ground is that of locusts as they make Australia their Spring snack. Australia is in the process of preparing for war against the worst locust swarms in 75 years. In September, rains began to expose massive egg beds to the warming sun, encouraging them to hatch ahead of schedule. ABC News reported,

"The Australian Plague Locust Commission says egg beds up to nearly 20 kilometres long have been exposed in north-western Victoria after the recent flooding.(10 Sep 2010)"

More recently bloomberg.com reported,

"Surveys in the Bourke, Walgett and Brewarrina regions had spotted more than 700 locust bands stretching up to 1.5 kilometers in length, Industry & Investment NSW said.(1 Oct 2010)"

While the locusts may spare most of Australia's crops, dry weather in Russia may not be so benevolent to Russian wheat. Russia announced last week that the embargo on grain exports was being extended to July of 2011. Russian government does not believe it will have sufficient information on status of Russian grain crops and reserves before that time. Rather than helping to feed the world, Russia may have to import grains to feed livestock herds.

Global reserves of Agri-Food grains are not as comfortable as some contend. The world cannot tolerate crop failures like that occurring in Russia on a regular basis. It may perhaps be able to tolerate one failure, but probably not two in one year. In coming years, could we find ourselves bidding with China, and then India, for global Agri-Food commodities in a far more competitive manner?

For investors, Agri-Food offers a rare opportunity to participate in the price inelastic portion of a long-run supply curve. The what? Agri-Food sector, on a global basis, is now operating in that sector of the long-run supply curve where prices go up more than demand. Percentage change in price is greater than the percentage change in demand, and demand is rising.

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