Agriculture: A Game-Changing Variant View

Farmer Brown here.

Here’s something we should all be paying close attention to in Agland…

Many of us have taken it as a given that increasing demand for proteins in the BRICs means an inevitable upward trajectory in both ag commodity prices as well as exports from American farmers.  Jeremy Grantham made this case in terms of both food and energy raw materials in his latest letter for GMO.

But what if the BRICs themselves come on strong with feed crop production of their own?  What if the competition to feed the BRICs and beyond gets a whole lot fiercer than what many are expecting?

This would be the polar opposite of the consensus view that we’ll never be able to grow enough to feed the next billion mouths, let alone the 9 billion expected by 2050.

So here comes my friend Kay from Big Picture Agriculture with a variant view.  The below comes from Jason Henderson, an economist at the Omaha Branch of the Federal Reserve Bank of Kansas City…

“If BRIC countries continue to expand their livestock production, U.S. crop producers may benefit the most from rising protein demand, although competition for these markets will be fierce. … The article concludes that, as BRIC countries increasingly try to satisfy their growing demand for proteins with domestic livestock production, the sharpest gains in U.S. exports may not emerge from protein but from feed crops. Yet, even these bright opportunities may be dulled as BRIC countries bolster their own grain production.”

Kay explains that Henderson’s view veers sharply from the recent “Paradigm Shift” commentary from Grantham that prices are headed higher and scarcity will be the rule no matter what we do…

We have more and more global competition in agricultural commodity production and for export market share. Grantham doesn’t seem to recognize this. We have a looming oil supply problem and our modern “efficiencies” of industrialized agriculture are reliant upon fossil fuels. This, Henderson doesn’t seem to acknowledge. It will be a coming race between these two momentums.

By the way, like me, she sees the train wreck up ahead in terms of our ridiculous ethanol fuel subsidies and the “burning of our food”.

The Grantham argument is of a this-time-it’s-different stripe which always makes me uncomfortable.  Henderson’s case that the world will be more efficient and productive is an interesting argument albeit a much more optimistic one if you’re concerned with food shortages.

Regardless of who’s right, the superior play remains to play Ag Activity (via stocks in the companies who will sell the seeds, fertilizer and equipment) over outright longs in the grains themselves if you’re a long-term investor in the space.

To understand how this all plays into the ag theme I urge you to get over to read the rest.


So Who’s Right and Who’s Wrong? Henderson or Grantham? (Big Picture Agriculture)

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