Contrarian Stock Market Investing News - Featuring Bargain Stocks » investing in agriculture

Three Big Winners for a Slow Day

Andrew Snyder — Fri, 18 Sep 2009 15:13:02 +0000

While the major indices are staying put, a handful of small caps are making big moves. If you have any one of these three in your portfolio, your day is anything but slow.

After a strong showing for the week’s first three days, the equities market is taking a bit of a breather today. Undoubtedly, winning investors are locking in their gains while they still can.

Even though the major indices are barely moving, the lackluster action could not hold back the market’s big gainers. There are several companies imprinting large blips on my radar screen today.

The day’s top award goes to Speedus (NASDAQ:SPDE) and its 150% surge forward. The small-cap is soaring thanks to news the FDA has approved its Signal X6 heart and lung scanner.

The innovative device can scan a person’s most-vital organs and transmit the data through the Internet to doctor’s anywhere in the world.

The FDA approval was critical to the company’s future success and allows Speedus to begin marketing the devices to a wide range of potential customers.

Already, the U.S. Department of Defense is knocking on the firm’s door. It will use the innovative sensors in six of its facilities.

Today’s news makes Speedus an up-and-comer to keep an eye on.

Artificial intelligence?

Another symbol worth writing down is the one that represents Origin Agritech (NASDAQ:SEED). While shares of the tiny Chinese firm are up by 18% at the moment, the figure had climbed to as high as 34% earlier in the session.

The eye-catching surge from the hybrid seed developer comes on the heels of news the company has acquired the global rights to a new seed gene that is highly resistant to a common type of weedkiller.

With the rights to sell Glyphosate-resistant corn, soybean, rice, cotton and canola seeds, the company has locked in a new revenue stream for at least the next five years, when patents begin to expire.

The hybrid seeds will likely be popular in today’s ultra-efficient farming environment. Using weedkiller-resistant seeds allows growers to reduce their costs while boosting productivity.

While no financial figures have been released, you can count on today’s news to increase next quarter’s financial figures.

Finally, get out your calendar and circle today’s date. In the circle, write down Protection One (NASDAQ:PONE). Today is the day that signals big things to come for the $115 million company.

While a big news event may not happen tomorrow or the next day, you can count on something noteworthy coming down the pike in the next few weeks. Rarely does an intra-day volume spike like this one leave us disappointed.

Shares of the electronic security monitoring company are up by about 25% today without even a hint of material change from the company. It is a sign that there is a very good chance the M&A rumor mill is firing up.

At the very least it is proof the small company’s volatility is on the rise. Add in the recent insider-buying spree (almost $200,000 worth) and you have a recipe for a bullish streak.

It may be a slow day for the overall markets, but if you own shares of any of these three companies, the action is anything but boring.

Source: Three Big Winners for a Slow Day

When Computers Meet Cell Biology

Patrick Cox — Fri, 18 Sep 2009 11:27:33 +0000

The sequencing of the human genome has resulted in the emergence of an enormously important new branch in the biotechnological sciences. The most common terms for this field are bioinformatics or computational biology.

You may have read about the discovery, recently, of a new and radically more effective mosquito repellent. Based on molecules found in black pepper, it was not discovered using traditional laboratory methods. Instead, it came about through computer simulations based on knowledge of mosquito cell biology. This is just the tip of the bioinformatics iceberg.

Until recently, cell biology has been something of a “black box.” We could observe how cells functioned, but had little insight into the actual mechanisms. Now, though, scientists are learning how cells work on the molecular level.

Using mathematical models and new technologies for detecting molecular processes, researchers are extracting raw data from DNA and modeling the ways genes work and interact. To understand this field, you should view your own genome as a giant software program for manufacturing proteins.

The process of unraveling and decoding the DNA software involves massive amounts of data collection. Then, once collected, correlation and other forms of computer analysis are performed on those data to figure out cause and effect. How big is this challenge?

Consider this: Each human cell contains about 3 gigabytes (3 billion bytes) of pure data and instructions. If this information were written in book form, it would require 5,000 volumes, each 300 pages long. That’s 120 times larger than the kernel of the Windows operating system, which is about 25 megabytes of code. This data resides, of course, in each cell’s pinpoint-sized nucleus. The human body, in turn, has approximately 100 trillion of these 3-gig cells.

Add to this complexity about 5,000 different proteins expressed by each cell. Different cells, however, express different proteins. These proteins, the proteome, behave as computer commands and serve to communicate between cells.

The decoding of all these systems is, obviously, a huge computational challenge. It has only just begun and it would not be possible, in fact, without recent advances in computer technologies. As more powerful computing comes online, the pace of bioinformatics discovery will accelerate. Quantum computing, because it is particularly suited to sorting out cell biology, will enable a “quantum” leap in understanding.

Today, there are three main areas of research in computational biology. These are genome analysis, protein structure prediction and drug design.

Genomic analysis is, as you would expect, the statistical analysis of genes. As more and more DNA is analyzed in conjunction with individual medical information, more is known. Among other reasons for performing this analysis, scientists are looking for the genes that cause or contribute to diseases.

Protein structure predictions are based on computer models that integrate information about the function of these proteins. This is an immense task, as there are tens of thousands of proteins. Ultimately, understanding the proteome will enable truly personalized medicine, with minimal side effects for patients.

With the knowledge gained from understanding the genome and proteome, computer models of target proteins can be created. Using these virtual proteins, drugs can be designed and tested using in silica simulations before testing in the lab.

The development of these virtual molecules, the heart of computational biology, is ending the practice of shooting blindfolded while hunting for drug candidates. Instead of randomly testing different drug candidates and analyzing the results, the field of candidates can be significantly narrowed using simulations. This radically improves the “hit rate,” increasing the speed of drug discovery and lowering costs.

Moreover, computer cell simulations improve as additional data are collected and integrated back into the models. Significant advances have already taken place in this transformational space. Medicine, incidentally, is only one area that is benefiting from bioinformatics. Many of the benefits are taking place in the agricultural sector. The genetic engineering of microorganisms is another area of enormous potential.

This new science of building and experimenting on virtual molecules may be the most important new experimental tool since the scientific method was codified by John Stuart Mill in the 1840s. As Moore’s law (the exponentially increasing power and cost-effectiveness of computers) continues to prove true, so will the power and importance of bioinformatics.

Regards,

Patrick Cox

Source: When Computers Meet Cell Biology

These Three Commodities Are Set to Move… Are You Ready to Profit?

Lee Lowell — Tue, 25 Aug 2009 00:29:33 +0000

If you’re looking for what I call a “blast-off” move, look no further than the sugar market.

Since April, the commodity has embarked on an extreme upside move, shooting to highs not seen since sugar hit $0.45 per pound in 1981. The chart below illustrates it perfectly…

Sugar Chart: http://www.investmentu.com/images/sugar_082509.gif

The main reason for such a large jump was news from India, which indicated a potentially low sugar crop.

Over the past couple of weeks, the sugar market has surprised many analysts by trading even higher. I say that because while fundamental news like this often results in impressive-looking moves, its impact has a limited lifespan.

So be warned. Moves like this usually indicate that the news is factored into the price and we’re entering the last phase of the bullish run.

Based on my experience in the commodities markets, where I’ve seen this type of pattern many times, I believe we’re headed for an inevitable turnaround for the sugar market. Here’s what you can do to profit form this, and two other commodities to keep an eye on.

How to Play the Sugar Market to the Downside

If you want to play the sugar market to the downside, I suggest you buy put option contracts, or by selling limited-risk call option spreads. At the moment, the October 2009 and March 2010 option contracts are the most active.

As you can see on the chart of the October 2009 futures contract above, the price surpassed the $0.2300 per pound level twice, moved back to $0.2150 per pound, then trotted past the $0.2300 mark again.

This is what technical analysts call a “triple top” and if sugar doesn’t move above $0.2300 again, we can seriously count on the market having a big retracement lower – most likely between $0.1900 and $0.2000 per pound.

So if you play the downside and it does make that retracement, I’d suggest taking profits at that $0.1900 to $0.2000 level.

Oil Heading For $80… And Beyond: Three Ways to Play the Move

Given the historic rise and fall of the oil market and the current state of the global economy, you’d never think that it could even consider the idea of moving higher again.

But the market continues to amaze everyone with its resilience and strength, with the current price hovering around the $74.50 per barrel area.

And with conflicting reports on the global demand for oil over both the near term and long term – plus weekly inventory reports that show a strong buildup of supplies one week, followed by draw-downs the next week – it’s easy to see how this can be a very treacherous market.

Here’s the deal: Regardless of what statistics are released and how Congressional attempts curtail oil trading limits, it’s clear that the oil market continues to bring in speculators from all levels – and will most likely keep trekking higher.

Check out the oil chart below. The price is currently trading above all three main moving averages (20-day, 50-day, 200-day) and is now looking to pop above the recent high of $75.27 from June 11. If that happens, we could easily see oil shoot to $80 from there – with $90 probably right behind.

Oil Chart: http://www.investmentu.com/images/oil_082509.gif

There are a couple ways to play the oil market – be it on the long or short side…

The futures and futures options that trade on the floor of the NYMEX. This is usually best for experienced commodities investors.
Through an ETF like United States Oil (NYSE: USO), which tracks the price performance. This gives you broad exposure to the market through one investment, rather than playing individual companies. It’s also a less expensive way to play the market and doesn’t require a commodity trading account.

You can either play the USO shares directly, or the options on the ETF. No matter whether you’re bullish or bearish, pick an option expiration period at least three to six months in the future, as that will give your directional call ample time to mature.

The Grain Markets: Summertime Means We’re on “Grain Watch”

Finally, let’s hit the grain markets (corn, wheat, soybeans)…

During summer, these markets can really turn to the upside, as the growing season can be extremely volatile, particularly if the weather is less than ideal.

The June-October period typically sees more speculation in the grain markets than any other time of year, purely because of the prospect of more volatility. Regardless of what any fundamental data may show, nothing can compare to the sheer panic-buying when we receive weather reports that show how a drought could wipe out a year’s worth of crop.

And some of it doesn’t even need to necessarily happen… it’s merely the potential for it happening, based on previous history. Fortunes can be made or lost in just those few summer months.

Buy Corn Commodities Low… And Ride the Bullish Move Higher

This year, for example, we’ve seen corn and wheat prices shuffle around their annual lows, due to government reports that show ample planting, high carry-over levels from last year and crop production that is ahead of schedule.

Corn Chart: http://www.investmentu.com/images/corn_082509.gif

With corn currently at its lows, if any potential weather disruption does occur over the next few months, taking a bullish position here could be a low-risk way to get involved.

Like with the sugar market, the best way to play corn is through limited-risk option strategies. Stick with expiration months of December 2009 or March 2010, so that you give the market plenty of time to mount a bullish move.

Good trading,

Lee Lowell

Source: These Three Commodities Are Set to Move… Are You Ready to Profit?

Monsanto Focused on Long-Term Growth, but DuPont Dustup Draws Attention from Regulators

Jason Simpkins — Fri, 21 Aug 2009 19:24:35 +0000

Monsanto Corp. (NYSE: MON), the world’s largest seed maker, says it’s on track to more than double its 2007 profit by the year 2012 and is expecting a “technology explosion” to provide even stronger products going forward. But while Monsanto continues to build on its reputation as a cutting edge agricultural business, it is also under siege by competitors and advocacy groups who claim the company is a monopoly.

The St. Louis-based Monsanto said in June that its fiscal third-quarter earnings fell to $694 million, or $1.25 a share, from $811 million, or $1.45 a share, in the same period a year ago. Sales slipped to $3.16 billion from $3.54 billion last year. The company also said its annual earnings would likely be at the low end of its $4.40 to $4.50 a share forecast range.

That’s not very impressive for a company that last year posted record net sales of $11.4 billion for fiscal 2008, a 36% jump from fiscal 2007. But there’s also good news for Monsanto investors. Chairman and Chief Executive Officer Hugh Grant said last week that his company is poised to achieve its long-term goals by producing more efficient products and streamlining production.

“We have committed to using our technology to double yields in our three core crops – corn, soybeans and cotton – by 2030, while reducing our use of key resources by one-third per unit produced,” Grant said. “Innovation has us well on our way to achieving this, with our most robust pipeline ever. We’re on the verge of an unprecedented technology explosion that will deliver the types of products growers want most – those that offer greater yield and value.”

By 2012, Monsanto expects its gross profit from its core seeds and traits business to be between $7.3 billion and $7.5 billion – about 2.5 times its 2007 level. Grant said this increase will be facilitated by the development of seven new “high impact technologies” that by 2020 will boost revenue by $3 billion.

“These projects came to be through a disciplined investment in seed and biotech that is unmatched in the industry,” Grant said. “We consistently invest 14% to 15% of our total net sales for seeds and genomics in research and development for breeding and biotechnology.”

It’s true that Monsanto’s commitment to research and development have made it the dominant player in the market for genetically modified seeds. But Monsanto has become a victim of its own success. It is currently locked in an ugly legal spat with its chief rival in the biotechnology E.I. du Pont de Nemours & Co. (NYSE: DD), which has led to accusations that Monsanto is a monopoly – an accusation that has drawn the attention of the federal government.

DuPont Gets Dirty

Conflict between the agribusiness arch-nemeses erupted earlier this year when Monsanto sued DuPont, and its subsidiary Pioneer Hi-Bred International Inc., for unlawful use of its proprietary “Roundup Ready” herbicide tolerant technologies in soybeans and corn.

DuPont doesn’t deny “stacking” soybeans with the Roundup Ready trait with its own Optimum GAT trait, but instead argues it is not violating Monsanto’s patent by doing so.

“We fundamentally disagree with Monsanto’s position that they can use their current trait monopoly to prevent the introduction of competitive seed products for U.S. growers,” DuPont spokesman Dan Turner told Reuters. “This is yet another example of Monsanto trying to flex its anti-competitive muscle in the market, by stifling healthy competition among seed producers that are looking to grow yields for those that matter most — the farmers,” he added.

The conflict escalated Monday, when Monsanto CEO Grant sent a letter to DuPont Chairman Charles O. Holliday Jr. accusing the company of a “serious breach of business ethics.”

“Your lobbying and communications that paint your company as a victim of limiting technology licenses is dishonest, disingenuous and downright deceitful,” Grant told Holliday in the letter.

Furthermore, Grant decried the use of “masked third parties” to “attack” Monsanto as
“misleading to the public and a serious breach of business ethics far beyond honest competitor behavior.”

It’s likely that by “masked third parties” Grant meant the Organization for Competitive (OCM) Markets, a nonprofit group that claims Monsanto controls 90% of the market for genetically modified seed. The Lincoln, NE-based organization claims to take on big agricultural companies in defense of small farmers and consumers, but it was recently revealed DuPont gives the group financial support.

“We’ve supported OCM for a number of years as we have dozens of organizations that are aligned with our belief around what’s in the best interest of our farmer customers,” DuPont spokesman Dan Turner told St. Louis Today. “However, we don’t disclose the amount that we give to OCM or any other organization.”

Turner couldn’t name any of the other organizations that DuPont supports, the paper said.

Is Monsanto Being Thrown Under the Anti-Trust Bus?

In July 2008, the OCM started the Crop Seed Concentration Project an initiative target specifically at Monsanto, which the group says controls 90% of the market for genetically modified seed, a figure Monsanto disputes.

“Monsanto’s effort to enforce licensing agreements and protect its patent rights has dramatically altered American agriculture,” the OCM says on its Web site. “Monsanto has filed more than 100 patent infringement lawsuits against U.S. farmers.”

The OCD’s crop concentration campaign coincides with U.S. President Barack Obama’s vow to enforce antitrust laws that were neglected by the Bush administration, and its national convention attracted the representatives from the Federal Trade Commission, the Department of Justice, and the Commodity Futures Trading Commission.

“For many farmers and consumer advocates, we understand that there are concerns regarding the levels of concentration in the seed industry–particularly for corn and soybeans,” Philip Weiser, the new Deputy Assistant Attorney General, said at the OCM gathering, which took place in Monsanto’s hometown of St. Louis, Mo.

Weiser said federal regulators are “committed to examining” the level of competition in several agribusiness sectors

The Department of Justice and the Department of Agriculture will have a series of “workshops” to “openly discuss legal and economic issues associated with competition in the agriculture industry,” said Christine Varney, the assistant attorney general in charge of antitrust issues at the Justice Department.

“Monsanto welcomes the opportunity to be an active participant in the discussion and looks forward to these workshops,” the company said on its Web site. “There have been unsubstantiated allegations of a lack of competition in the seed market for several years now. We’re confident an objective review will reveal competition is alive and flourishing in the seed market.”

The workshops are scheduled to begin in January.

Source: Monsanto Focused on Long-Term Growth, but DuPont Dustup Draws Attention from Regulators

One Commodity Worth Buying

Chris Mayer — Mon, 03 Aug 2009 21:30:23 +0000

All the factors that set the fertilizer bull market in motion in the first place are still here. Populations are still growing. Diets are shifting toward more fruits, vegetables and meats — all fertilizer intensive. As Potash CEO Bill Doyle says, “This will continue to put pressure on global grain supplies, as farmers are being challenged to produce more with land and water resources that are shrinking on a per capita basis.”

Fertilizers are a key part in meeting that challenge. And the farmers are financially in good shape to buy more. The debt-to-equity ratio for the U.S. farmer is only around 10-15%.

Overseas, farmers are subsidized directly. In India, the government picks up the tab of higher fertilizer costs. As Doyle pointed out: “With low grain stocks and low yields and 1.2 billion people, they’re not going to drop the ball. They’ll continue to support the Indian farmer.” China has also started to subsidize the Chinese farmer, helping out with seed, machinery and fertilizer.

But since fertilizer application rates fell around the world this year, it is hard to imagine a strong harvest. We will see. As grain inventories are already low, I expect we’ll need a strong planting season in early 2010. That means a strong demand for fertilizers.

At current pricing for potash, there is no incentive to boost production by investing in new capacity. The financial crisis also laid low any plans for more potash. A greenfield project — that is, one started from scratch — needs a higher price to make it work.

As Doyle pointed out, the cost for a 2-million-tonne facility in Saskatchewan is approaching $3 billion. That doesn’t include the infrastructure you need around it. Plus, it would take nearly a decade to get that new project generating a return on investment.

So from an investment point of view, potash still looks very good.

Source: One Commodity Worth Buying

Financial Meltdown Will Send Investors Back To Basics

Chris Mayer — Thu, 23 Oct 2008 11:43:05 +0000

Somewhere along the road, America forgot how to make things. Finance became our national product. But things are about to change, says Chris Mayer. As the global banking system cracks, investors will return to the simple, tangible things that we need. And this will create some stunning profit opportunities for those who move quickly.

This from Whiskey and Gunpowder:

The bell of American finance has cracked. It was a long time coming, as I’ll show you. The biggest change in the American economy in the last generation or so has been the rise of finance at the expense of making things. This seemed to work for a while, but like a boxer who has a habit of dropping his hands, America finally caught one on the chin.

Every crisis, though, brings opportunity. In this one, investors will go back to investing in simpler, more durable things (at least until forgetfulness kicks in). For instance, investing in a company that supplies grains to hungry people looks like a better bet than investing in one that sells mortgages to people who can’t afford them. The focus will shift to things we need, rather than things we want.

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Sometime over the past few decades, we abandoned the old-world notion of making things. We turned to making shuffling paper our stock in trade. Precisely when and why this happened will be something for historians to debate. But sometime in the 1990s, the percentage of corporate profits from finance passed that from manufacturing.

It was the first time that had happened, and the gap has only grown wider since. Before the great credit crisis hit, profits from financial firms made up nearly half of corporate profits. Only 10% came from the manufacturing sector. As recently as the mid-1960s, it was the other way around.

Mortgages, before the crisis hit, made up 60% of total bank loans and the financial sector grew to become our biggest sector — bigger than health care, retail or manufacturing.

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The Fed’s Handout Line Open to All Failing Companies

Who will be the next failing company to come to the Fed with hands out ready for a handout? It’s hard to tell…unless you have the right information.

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Replay the 1970s — Only Bigger…

To a smaller degree, we had a similar crisis in the 1970s, Kevin Phillips tells us in his new book, Bad Money. Mortgage debt doubled from 1960-70. The Dow crashed, losing 36% of its value from 1969-70. Hedge funds blew up. The top 28 funds lost 70% of their assets, and about 100 brokerage and financial firms disappeared — by either acquisition or outright failure. Seems a lot like the outlines of the present day, does it not? The 1970s also had two major oil price spikes. The first in 1973-74 and the second in 1979-80. We’ve already had one oil spike now, and a second one is in the cards.

The neglect of making things is perhaps most evident in the oil business. Phillips says the U.S. has a “dated, ghost-of-glories past petroleum infrastructure.” He writes that the major oil companies “are wealthy, but aging behemoths, hard-pressed to maintain production levels, despite large exploration outlays, and no longer enjoying access to overseas oil fields they once commanded.”

Exxon Mobil (NYSE:XOM), once the largest oil company in the world, now ranks 25th by booked oil reserves. The top 10 are all state-owned national oil companies (NOCs). The top 13 NOCs own four-fifths of the world’s known oil reserves. They don’t share them cheaply.

A look at where we get our oil is not encouraging, as the chart below shows. Most of these sources of supply are not particularly reliable. As Phillips opines (the table below comes from his book): “Of the eight principal 2007 suppliers of petroleum to the United States as of August, only one, Canada, could be called secure and reliable.” Mexico seems secure, but exports have been falling since 2004, as Mexican production has fallen. It could become an insignificant source of oil by 2012.

And we are not alone in competing for these oil reserves. China became a net oil exporter in 1993, and its appetite grows every year. It is now the world’s second largest consumer of oil, behind only the U.S. China actually imports more oil from Saudi Arabia than the U.S. This partnership is not surprising, given the dynamics of the New Silk Road.

The “New Silk Road” is a term I use for the boom in trade between countries from the Middle East to China. In matters of energy, you see a lot deals inked on the New Silk Road. Saudi Arabia and China get together regularly like newfound pals. Sinopec, a Chinese oil company, recently got the OK to explore the Saudis’ Empty Quarter for oil and gas. Saudi Aramco, the big oil company, put $750 million toward a huge plant in China.

Just as interesting to me is what I like to call the “New Burma Road” — after the road of World War II fame that linked China and India via Burma. The New Burma Road identifies the booming trade between India and China. As Phillips writes, “China has already made a six-lane highway out of its portion of the road from Chinese Kunming to India’s state of Assam… The demographics of a Sino-Indian entente would make it especially momentous.” Yeah, I’d say so, given the strengthened ties between more than two billion people.

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As you know, there is an awful lot going on in the world today, and it’s all far more complex than I can get into here. But this is where we are, in brief: The U.S. economy faces a crisis in its biggest sector — finance. The neglect of making things is finally taking its toll, a fact most apparent in the oil and gas world, but also apparent in infrastructure across the spectrum. And the world is less U.S.-centric than it has been in a long time. We see this, too, in the oil and gas sector and in the flurry of deal making along the New Silk Road (and its “momentous” segment, the New Burma Road.)

The implication of this post-finance U.S. economy is a theme we’ll explore more in this letter. As an early conclusion, though, I believe the spread between finance and manufacturing has reached millennial extremes, like a rubber band at its limits. Now begins the snap back.

Source: Finance, Meet Manufacturing…

The World’s Running Out of Fertile Soil… Here’s What to Do

Chris Mayer — Thu, 02 Oct 2008 18:29:10 +0000

Captial and Crisis editor Chris Mayer says a new plot line is unfolding in the agriculture boom.

“It begins with the fact that there are fewer and fewer options these days for importers looking for large quantities of high-quality grains. But it speaks more to a deeper issue: an emerging shortage in fertile soil.” In a nutshell: we’re running out of good dirt.

This means that farmland is becoming a strategic asset… and one that is likely rise in value as the crisis in fertile soil plays out.

This from Chris in Whiskey and Gunpowder:

Fertile soil — good dirt — may become more important to land values than oil or minerals in the ground. Some say it is already a strategic asset on par with oil. As Lennart Bage, president of a U.N. fund for agricultural development says, “Now fertile land with access to water has become a strategic asset.”

Doubtful? Consider rising export restrictions around the globe, which act as a sort of fence keeping the goods within borders.

India curbs exports on rice. The Ukraine halts wheat shipments altogether. The number of grain-exporting regions has dwindled, like the vanishing buffalo herds. Before World War II, only Europe imported grain. South America, as recently as the 1930s, produced twice as much grain as North America. The old Soviet Union, for all its faults, exported grain. Africa was self-sufficient.

Today, only three major grain exporters remain: North America, Australia and New Zealand.

No surprise, then, to find faith in the global food supply at generational lows. So begins the scramble to secure farmland.

Saudi Arabia, for example, is particularly at the mercy of the winds of global agriculture. It has little ability to produce its own food. The kingdom, reports the Financial Times, “is scouring the globe for fertile lands in a search that has taken Saudi officials to Sudan, Ukraine, Pakistan and Thailand.” Saudi Arabia’s quest is not one it pursues alone. There are many hunters.

The UAE has also been looking to lock down acreage in Sudan and Kazakhstan. Libya is looking to lease farms in the Ukraine. South Korea has been poking around in Mongolia. Even China is exploring investing in farmland in Southeast Asia. While China has plenty of cultivable land, it does not have a lot of water.

“This is a new trend within the global food crisis,” says Joachim von Braun, the director of the International Food Policy Research Institute. “The dominant force today is security of food supplies.” Food prices reflect this crimp in supply.

The mainstream press focuses on issues such as population, dietary shifts and the impact of biofuels. One thing that doesn’t get talked about much may be the most important thing of all: A growing shortage of quality topsoil. Call it the topsoil crisis.

Quality soil is loose, clumpy, filled with air pockets and teeming with life. It’s a complex microecosystem all its own. On average, the planet has little more than THREE feet of topsoil spread over its surface. The Seattle Post-Intelligencer calls it “the shallow skin of nutrient-rich matter that sustains most of our food.”

The problem is that we’re losing it faster than we can replace it. And replacing it isn’t easy. It grows back an inch or two over hundreds of years.

When the Fed Cuts Rates Again Watch Commodities Lift Off

Dan Amoss — Fri, 12 Sep 2008 19:28:24 +0000

Crude oil prices are nudging $100 a barrel today. That’s a long way down from oil’s summer high of $147 a barrel.

“It has been a brutal couple of months for commodities investors,” says Dan Amoss in Rude Awakening.

But it’s the type of wild swing that opens up a great profit play for contrarian investors. Whereas prices this summer overshot fundamentals, prices now look like they may overshoot to the downside.

But commodities will take off, says Dan, when the feds cut rates again…

The fundamentals of supply and demand will matter again once current fears ebb. They always do. Energy and commodities have solid long-term fundamentals that rest on a foundation of human need. By contrast, financial companies are still facing ugly fundamentals, like plunging collateral values, rising defaults, and capital shortages.

Central banks will prevent the worst-case scenario of uncontrollable, self-reinforcing defaults. But their money-printing efforts will not bring about a re-inflation of the housing and credit bubbles. We probably won’t see another credit bubble for at least a decade.

Once the fall in housing and mortgage securities slows down, excess liquidity created by central banks will find its way back into inflation hedges like gold and oil, potentially creating a future bubble in commodity-oriented investments.

As for the rest of 2008, my research leads me to the following most likely outcome: The stock market remains weak until the Federal Reserve totally abandons its “inflation fighting” stance. The Fed may even cut rates further as unemployment rises. At that point, commodity-oriented stocks will probably regain their position of leadership.

The recent decline in commodity prices allows the Fed to conjure up another “deflation” scare. This would provide cover to slash rates and inject reserves more aggressively into the banking system. Then, the U.S. dollar would resume its descent, while gold and commodities would resume their ascent.

The Fed’s current inflation campaign has been very modest thus far. Rather than expand its balance sheet and flood the banking system with liquidity, it has concentrated on swapping U.S. Treasuries for dodgy mortgage securities.

Central bankers on the other side of the Atlantic, though, seem to care more about what’s backing their currency. The European Central Bank just announced that it’s going to limit its role as a dumping ground for impaired mortgage securities. The Financial Times explains:

“[ECB President Jean-Claude] Trichet announced a series of measures to increase the cost of using asset-backed securities to obtain ECB funds and to exclude some such deals when underlying mortgages or other loans are not denominated in euros. The announcement follows comments by ECB council member Yves Mersch last month. He said there were still cases where ‘you see dangers of gaming the system.’

“This year, it emerged Macquarie Bank had constructed a deal backed by Australian car loans that could be used at the ECB and Lehman Brothers had formed a huge collateralized loan obligation of risky buyout debt to use at the central bank.

“Mr. Trichet said the ‘general character’ of its broad-based operations remained unaffected. ‘We’re not changing it, we’re refining it,’ he said.

“Only a ’small fraction’ of collateral would be affected. Banks’ ability to take part in its financing operations would be unimpaired, the ECB president said.

I see the ECB’s decision as a tactic to convince savers and investors that the euro will not be forever backed by securities of dubious quality. But European politics may eventually overwhelm the ECB’s fairly disciplined monetary record. Voters will demand easy money.

In the U.S., fiscal and monetary policy will likely be influenced more and more by big investors and foreign creditors. Bill Gross, manager of a huge bond portfolio, is concerned about the potential for “financial tsunamis” and “debt liquidations.” He thinks that the Treasury Department (i.e., taxpayers) has not done enough to stop the bleeding in mortgage securities. In his latest “Economic Outlook,” Gross describes how institutional mortgage buyers may sit on their hands until the Treasury Dept. initiates a new, huge bailout.

Whether taxpayers like it or not, Gross’ plea for a new bailout will probably be answered. The leverage in the banking system has grown beyond the point of no return. There’s no way the Fed and Treasury would allow a spiraling liquidation of debts. One way or another, mortgage losses will be partially “socialized.” Most of the burden will fall on savers because over the next decade, more paper money will be created than would otherwise have been created.

Think of paper money as a shock absorber for losses in the financial system. In times of crisis, central banks try to calm fears about bank runs. They spread losses from bad loans around to everyone who holds paper money. This game can keep going until the holders of that paper money lose confidence in its function as a store of value.

But don’t interpret a new bailout plan for mortgage investors as a sign that the financial stock bear market is over. It’s not – at least not for banks holding the worst credit exposures. Over time, these institutions will have to confess losses; take write-downs; and raise new, dilutive capital. Many will be taken over by the FDIC, which wipes out shareholders.

During times like these, investors do well to remember that the commodity sector never requires a “lending facility” from the Fed or a bailout plan for the Treasury.

Source: The Commodity Washout – Gift or Curse?

Cash In on Russian Agriculture Boom with Black Earth Farming

Irwin Greenstein — Tue, 02 Sep 2008 15:21:36 +0000

Soaring food prices are turning Russia’s former Soviet farming collectives into modern capitalist havens, says Irwin Greenstein, writing for Contrarian Profits.

One company called Black Earth Farming (STO:BEFSDB) is leading the charge into millions of acres of prime Russian farmland left fallow after the collapse of the Soviet Union.

Black Earth Farming is part of a movement by hedge funds, portfolio managers and Russian insiders to capitalize on the worldwide boom in food. This is a great long-term opportunity for foreign-equity investors.

Approximately 7% of all arable land on the planet is owned either by the Russian state or by collective farms. Of that, roughly 35 million pristine hectares lies uncultivated. (A hectare is about two and a half acres.) To put that into perspective, Britain has 6 million hectares of cultivatable land.

The land under till coughs up tiny yields due to poor work ethics and antiquated technology. The average Russian grain yield is 1.85 tons a hectare – compared with 6.36 tons a hectare in the U.S.

The enormous agricultural potential of Russia’s farmland has caused prices to double in the last two years. The average price a hectare was $570 in 2006 and is now $1,000.

A pioneer in Russia’s new farming movement has been Black Earth Farming, with offices in the Channel Islands and Moscow. The company is listed on the OMX Nordic Exchange and trades in Swedish Depository Receipts (SDRs). Obviously, this company isn’t for casual traders, but those people willing to withstand the hassle can catch the rare find on the rebound.

The company has been acquiring and developing farmland and assets in the Black Earth Region in Russia – one of the most fertile regions anywhere. This land languished for decades under the Soviet regime and the decades that followed its collapse.

A new system of land titles was established under government reforms called the Russian Land Code. Investors who got in early managed to grab the immediate appreciation from the recent demand for agricultural products.

Because of its early entry, Black Earth Farming gained a strong position in several Russian regions, in particular the richly endowed with black earth soil. As of 30 June 2008, Black Earth Farming had 331,000 hectares of land under its control. This year Black Earth Farming says it plans to harvest about 143,600 hectares.

In its harvest progress report of August 19, 2008, the company reported that it had concluded harvesting slightly more than 52% of the total planted area. Despite the fact that as much as 40% of the fields were previously fallow, Black Earth Farming said, “the yields for the harvested area have so far been satisfactory.”

The average gross yield for winter wheat stood at 4.4 tons per hectare, with 80% of the crop already harvested. While its barley crop came in at 3.3 tons per hectare, the company’s rape culture suffered from winterkill and the yield was quite small. The total harvest for this year will run through late September, early October.

Black Earth Farming went public right after Christmas 2007. The offering was over-subscribed. Its current 52-week range is $81.75 down to $28.00. With the IPO froth subsided, the current prices indicate a potential long-term opportunity for investors with a penchant for foreign equities.

It’s quite possible that the price hit bottom on August 27, at $25.60. As of this writing, it’s trading at $27.30. Keep an eye on this stock to see if the rise is a blip or a trend.

P.S. In yesterday’s Daily Reckoning, Bill Bonner said Russia “could not only be one of the world’s greatest energy exporters, it could also be one of the world’s leading exporters of food.” He also said Russia’s transformation into a food-producing giant could seriously threaten the US agriculture sector. Investors should adjust their portfolios accordingly.

How the Persian Gulf Will Drive the Next Big Agricultural Boom

Irwin Greenstein — Fri, 29 Aug 2008 16:15:23 +0000

The oil-rich Persian Gulf states are making a headlong rush for farmland, says emerging markets expert Irwin Greenstein.

Most of these countries heavily rely on food imports at a time when global food prices surged 57% between Aprils 2007 to 2008, according to the United Nations.

With food riots breaking out in impoverished countries, as well as rationing in industrialized nations such as the U.S., the Persian Gulf states have made food availability a high priority.

A report by the Gulf Research Center (GRC) revealed that Saudi Arabia is the largest Arab food importer in the Gulf Cooperation Council (GCC), followed by the United Arab Emirates and Kuwait. In 2007, total GCC food imports hit US$10 billion, US$3 billion of which accrued to the UAE. Other GCC members include Bahrain, Kuwait, Oman, Qatar and the (UAE).

The GCC states are especially susceptible to food shortages. Arid landscapes and of course water shortages make it difficult for them to grow their own crops. The GCC imports approximately 60% of its food.

Worse, the total population of GCC members rose from around 30 million in 2000 to more than 35 million in 2006. This numbers is expected to hit nearly 39 million by 2010 and 58 million by 2030, according to a Dubai-based Gulf Research Centre (GRC) report.

A regional food crisis is more fact than fiction.

Only 1% of land in the UAE is arable, while in Saudi Arabia portion of arable land stands at about 3%. By comparison, 18% of the land in the U.S. is arable while the U.K. stands at 24%.

For investors, this international land grab by the GCC could provide secondary investment opportunities in industries such as fertilizer, farm equipment and shipping.

However, the clock is ticking….

It won’t be long before it becomes harder to secure farmlands in Africa, India, the Middle East and even Eastern Europe. The GCC is already engaged in bidding wars with China and private hedge funds.

To leverage its natural resources, the GCC states could find themselves trading oil for food.

For example, Indian External Affairs Minister Pranab Mukherjee told the Emirates Center for Strategic Studies and Research last month, “I see India’s requirement for energy security and that of the Gulf countries for food security as opportunities that can be leveraged to mutual advantage.”

As part of this trend, Pakinstan’s Prime Minister Yousaf Gillani’s visit to Saudi Arabia in sought $6 billion in financial and oil aid in return for hundreds of thousands of acres of agricultural land, which could be used by the Saudis.

Such arrangements are likely to become commonplace in mutually beneficial deals to close the gap between rising energy and food prices between the richest and poorest nations.

The GCC countries are increasingly receptive to such arrangements. It gives them a chance to import food at 20% to 25% less than the open market, addressing their own domestic inflationary pressures.

Investors now face a new horizon of agricultural opportunities. Countries that were once too poor to bring state-of-the-art farming into their countries suddenly receive a cash infusion to buy new equipment and supplies.

It’s also very possible that the timing could be ideal.

If you believe that the corn-based ethanol bubble will puncture a big hole in agricultural spending, the GCC may pick up the slack.