Monday

Phosphate Rock, Phosphate Companies - Investing in Agriculture

Agriculture: Phosphate Rock

Reasons to invest in Agriculture:

• Population growth - unlike other commodities, food demand is not cyclical
• Inflation will push prices up
• No one wants to be a farmer these days (you know anyone in school who became a farmer? In our day job we sometimes travel to rural country towns - whenever we have the opportunity to meet farmers, they always complain of two things:

1. They want to retire but cannot because they need someone to take over their farms and all their kids are not interested
2. They cannot recall the last time they prospered from sustained high prices

• Bad weather (drought) & disease seem to be on the rise (is this a manifestation of global warming?)
• Soft commodity have not had a secular bull run for decades

We have been looking for ways to invest in agriculture - so far we feel the best exposure is through Agriculture indices such as the Rogers Agriculture Index - though to have maximal leverage one should invest in the companies themselves. The problem is we are not smart enough to pick the winners. Management risks, bad weather, disease may result in poor returns despite picking the right industry to invest in.

Looking at the hard commodity bull market, it appears that it does not matter as far as management risks are concern since most if not all commodity explorers went through the roof during the boom. Investors were indiscriminately putting money in - the penny stocks went up few folds. Will soft commodities undergo the same secular bull market? The variables in the soft commodity equation is quite different to hard commodities - weather, disease, government intervention to control food prices (more unpredictable forces at play). Continue…