Friday, November 8, 2013

Money Show 2013 - Jim Jubak

Jim Jubak is editor and founder of His talk was entitled "Growing Demand? Limited Supply? Big Payoffs for anything that Improves Production? Not Subject to Deflation?" Or, "Are food stocks the perfect sector". To get his newsletter, email Jim.

There is a conundrum about this market. He does not believe in gloom and doom. No one has any knowledge of where the market is going. He thinks that in the short term, the market is going up. Cash is moving in and out of the market.

For the global market, we have growing population and growing wealth. Because of the growing wealth people are doing things like switching from rice to prepackaged noodles. The problem with commodities is that they have big down turns. In China, if you have the right connection you can get money without having to prove you can make money. You just need a job.

China goes from over capacity to under capacity to over capacity. This is why we have problems with commodities. An example is potash. The market is clasping and price is down 30% and still falling. This is why food commodities have the same arc as other commodities. Copper is down 30% from 2011 peak. It looks like we have a surplus of 8000,000 metric tons. Demand is still falling. Copper goes from $7,200 a metric to$ 6,200 in 12 months.

Life style changes due to rising income increases food demand. Meat and dairy consumption grows with income. China is expected to become the world leader in consumption of pork, passing the EU by 2022. China's import of oil seeds is expected to climb 40% in 10 years.

Why are food commodities different from other commodities? It is more difficult to add new capacity. Consumption of food is less elastic. China is not a major source of new capacity. Climate is a wild card.

We should rethink the list of "food socks". First fertilizer is not a food but a commodity. While increasing food capacity is difficult, the payoffs are high enough to finance continued efforts in water purifications, desalination and seed breeding. Infrastructure in developing economies is a food issue. In India, 40% of its production spoils before it hits the market. Think about who collects higher prices, who can pass along higher prices and who has limited pricing power.

McDonald's is not a food company as it has a hard time in passing along increases in food costs. His number one Food stocks are ones like Groupe Danone (OTC: DANOY) and Nestle SA (OTC: NSRGY) He likes Nestle for its bottled water. His second group of food stocks is Industrias Bachoco SAB de CV (NYSE-IBA) and BRF SA (NYSE-BRFS). This last stock is the 10 largest in the world and is from Brazil. Others are Gruma SAB de CV (NYSE-GMK), Deere & Co (NYSE-DE), Yara International ASA (OTC-YRAIF) and Fonterra Shareholders' Fund (AX-FSF). The last company is in Sydney Australia.

China cannot produce dairy products as it does not have the land.

Next are water stocks as food stocks. Stocks are Manila Water Co Inc. (OTC: MWTCY), Guangdong Investment Ltd. (OTC-GGDVY), Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE-SBS), Xylem Inc. (NYSE-XYL), General Electric Co. (NYSE-GE) and Keppel Corporation Ltd (OTC-KPZELY). Guangdong Investment Ltd supplies water to Hong Kong. GE is included because it has water infrastructure.

Next are seed stocks as food stocks. These are good stocks for the short term, but he does not know about the long term. Stocks are Monsanto Co. (NYSE-MON), DuPont (NYSE-DD) and Syngenta AG (NYSE-SYT). There is a long term question of how viable this whole GMO/herbicide approach is. This approach kills everything, including bacteria and then you get hardening of the soil.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

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