Friday, January 18, 2008

One Lonely Voice Agrees with Me on Food Inflation

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Thanks to a reader for emailing me this story; I've never heard of the website or the strategist but it appears to be a Canadian newspaper and the strategist is from Bank of Montreal - I could not agree with this story more, and verbatim have been espousing the same views. Food will be the future crude oil shortage. Once again while analysts fret over a month over month inventory blip in potash inventories [Morgan Stanley Worried about Fertilizer] , I just have to sit back and say ... my friend, try to look at the big picture... its scary. Call your local food bank if you don't believe me, we are already seeing anecdotal stories of large drops in food donations - after all canned beans hold their value more than our disastrous dollar.
  1. Food Bank Shortage in TX
  2. Food Bank Shortage in MI
  3. Food Bank Shortage in NYC
  4. Food Bank Shortage in Washington DC
  5. Food Bank Shortage in Pittsburgh
  6. Food Bank Shortage in New Hampshire
  7. Food Bank Shortage in Minnestota
Folks, I could do every state if I wanted... you get the picture - go run a check via Google. And it's going to only get worst as the economy worsens.

So whether Mosaic (MOS) and Potash (POT) trade at this price or that, this week or that, as the market frets about this or that - we have one of the biggest secular growth markets I can remember, and VERY few companies who can take advantage of it.

Why people listen to the analysts who have been this wrong on estimates and downgrade financial stocks down 50% is beyond me. Where were the downgrades last summer/spring in ANTICIPATION of the issue? same for RETAIL, same for RESTAURANTS - NOW you downgrade them? Gee thanks! If you only read one post from this blog and you are serious about investing I urge you to read this one [The Games Analysts Play - Why No One Ever Says Sell] And yet their word is taken for gospel - they are herd mentality at its best! (or worst!)

Here is how "accurate" these analysts have been on Mosaic earnings [Mosaic with another Excellent Quarter].

Analysts estimates for next year are now up to $5.40, up from $3.55 90 days ago. I think it's still too low. I wrote in October [Analysts Still Doubting the Fertilizer Stocks] and showed how wrong they have been... and I contend continue to be. These estimates are going up, and once the market returns out of panic mode, so will these stocks.

2008 estimates now: $5.94
30 days ago: $4.31 <-- not so much 90 days ago: $3.61 <-- oops Potash reports next week - except the same stellar stuff we saw from Mosaic. Folks, to put in perspective how wrong these analysts have been (that we now agree with that the sky is falling because of a potash inventory number), the difference between $5.94 and $3.61 is 65%. meaning 3 months ago, these analysts (AS A GROUP) were wrong by 65% of the potential earnings power of Mosaic. Yet now when they say the End of Days is approaching we nod our head in agreement and sell the stock off by nearly 30% in a week. Clearly, we are also herd animals.

So I'm taking a big hit this week on these names, maybe next week, maybe another month. Meanwhile Mosaic is now trading at 13x earnings for 2008. Incredible - still much cheaper than Potash and although I've increased stakes in both I am weighted much more into Mosaic due to relative valuation. But a year from now and 3 years from now when the true 'scarcity value' is recognized I think these stocks go far higher - especially the potash producers. Right around 2010, Potash should be able to actually to actually help the demand/supply imbalance in fact... until then....

Forget Oil, the new Global Crisis is Food
  • A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said
  • "It's not a matter of if, but when," he warned investors. "It's going to hit this year hard."
  • Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.
  • "The greatest challenge to the world is not US$100 oil; it's getting enough food so that the new middle class can eat the way our middle class does, and that means we've got to expand food output dramatically," he said.
  • Mr. Coxe said in an interview that this surge would begin to show in the prices of consumer foods in the next six months. Consumers already paid 6.5% more for food in the past year.
  • At the centre of the imminent food catastrophe is corn - the main staple of the ethanol industry. The price of corn has risen about 44% over the past 15 months, closing at US$4.66 a bushel on the CBOT yesterday - its best finish since June 1996.
  • "You're going to have real problems in countries that are food short, because we're already getting embargoes on food exports from countries, who were trying desperately to sell their stuff before, but now they're embargoing exports," he said, citing Russia and India as examples.
  • With 54% of the world's corn supply grown in America's mid-west, the U.S. is one of those countries with an edge. But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America's grain harvest in 2007.
  • He said there are about two dozen stocks in the world that are going to redefine the world's food supplies, and "those stocks will have a precious value as we move forward." (keep that in mind)
  • Mr. Coxe said crop yields around the world need to increase to something close to what is achieved in the state of Illinois, which produces over 200 corn bushes an acre compared with an average 30 bushes an acre in the rest of the world. "That will be done with more fertilizer, with genetically modified seeds, and with advanced machinery and technology," he said.
Mr. Coxe I salute you. Well that makes 2 of us talking about it now. Which means it should hit CNBC's radar by late 2008 or early 2009. At which time you can say... ah thanks for bringing me this breaking information.

The more I mull over this administration I am wondering which will be seen as the biggest boondoggle - Iraq or the energy policy? This push to corn ethanol might be one of the most far reaching disasters we have seen. And it's the whole Congress cheering it on, so none of them are innocent (I've only seen McCain and Bloomberg come out against it) Everyone else is out there buying votes. Fascinating

Long Mosaic and Potash in fund and in personal account

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