The Underappreciated Significance of Food Security and Fertilizers
Though many disinflationary forces still predominate around the globe, more and more is being said about food inflation. We still believe in the primacy of food security as forces as disparate as the weather and urbanization coalesce to push the price of food upwards.
Some recent headlines reinforce this assertion:
Food Prices Surge as Drought Exacts a High Toll on Crops – WSJ 3/18/14 (subscription req’d)
Brazil Drought Jolts Commodities’ Prices – WSJ 3/4/14 (subscription req’d)
Rising Food Prices Bite into Household Budgets – USA Today 3/19/14
It’s also not just the “staples” like wheat or meat that have seen prices trending upwards. Even shrimp are experiencing price “hyperinflation”, to borrow a phrase from Business Insider:
The dramatic increase in shrimp prices is reportedly one of the reasons Darden Restaurants (DRI:NYSE) is trying to spin off its Red Lobster seafood chain. Clearly, the restaurant can’t pass along a price increase to a consumer without the means to pay for it.
Not surprisingly, as food price increases have started to garner headlines, central banks and governments are pledging to step in and ease the pain:
Brazil central bank pledges to limit food inflation jump – Reuters 3/18/14
Government involvement can, of course, take many forms including trade agreements. China and the Netherlands recently committed to signing a trade agreement where the Chinese will “import” Dutch dairy expertise to increase both the quantity and quality of Chinese dairy products:
China, Netherlands to sign trade pacts, including deal on dairy cooperation – Foxnews.com 3/23/14
And perhaps most worryingly, as food prices increase, wages have not kept pace. While consumer prices in the US have risen by 6.4% since 2011, the price of chicken is up 18.4%, ground beef is up 16.8% and bacon (a personal favorite) is up 22.8%. Median income has reportedly only gained 1% over the same timeframe.
The charts below, though slightly dated, show the trend in price inflation of select food items.
Counteracting This Trend
There are several ways to protect against rising food prices. Self-education regarding technologies and geopolitical developments is a good start. With Russian President Vladimir Putin’s strategy in annexing Crimea, several of Moscow’s allies, including Belarus, are rethinking their relationship with Moscow. You’ll remember that Belarus is one of the most important potash producers on the globe.
If Belarus goes “in play” as the Ukraine has, profound implications for global fertilizer markets will result. If you have a subscription, please see the excellent article in the most recent edition of Foreign Affairs titled, “Belarus Wants Out: One of Russia’s Closest European Allies Begins to Play the Field”.
Improving agricultural output can also help mitigate rising food prices and this is why we have been close followers of the fertilizer space. Brian Ostroff of Windemere Capital, has penned a wonderful article discussing the fertilizer markets and the implications for Arianne Phosphate (DAN:TSX, DRRSF:OTCBB). You can view his prescient thoughts here.
We will be returning to the fertilizer markets in the Notes shortly as it appears that there has been movement and consolidation in the space which brings with it more discovery opportunities.
Thanks,
Chris Berry, MBA for Morning Notes
Join the Mailing List for Morning Notes
The material herein is for informational purposes only and is not intended to and does not constitute the rendering of investment advice or the solicitation of an offer to buy securities. The foregoing discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (The Act). In particular when used in the preceding discussion the words “plan,” confident that, believe, scheduled, expect, or intend to, and similar conditional expressions are intended to identify forward-looking statements subject to the safe harbor created by the ACT. Such statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed in any of the forward looking statements. Such risks and uncertainties include, but are not limited to future events and financial performance of the company which are inherently uncertain and actual events and / or results may differ materially. In addition we may review investments that are not registered in the U.S. We cannot attest to nor certify the correctness of any information in this note. Please consult your financial advisor and perform your own due diligence before considering any companies mentioned in this informational bulletin.
The information in this note is provided solely for users’ general knowledge and is provided “as is”. We at Morning Notes make no warranties, expressed or implied, and disclaim and negate all other warranties, including without limitation, implied warranties or conditions of merchantability, fitness for a particular purpose or non-infringement of intellectual property or other violation of rights. Further, we do not warrant or make any representations concerning the use, validity, accuracy, completeness, likely results or reliability of any claims, statements or information in this note or otherwise relating to such materials or on any websites linked to this note. We act as advisors to Arianne Resources and own shares purchased in the open market.
The content in this note is not intended to be a comprehensive review of all matters and developments, and we assume no responsibility as to its completeness or accuracy. Furthermore, the information in no way should be construed or interpreted as – or as part of – an offering or solicitation of securities. No securities commission or other regulatory authority has in any way passed upon this information and no representation or warranty is made by us to that effect. For a more detailed disclaimer, please go to http://house-mountain.com/disclaimer/.
The information in this note is provided solely for users’ general knowledge and is provided “as is”. We at Morning Notes make no warranties, expressed or implied, and disclaim and negate all other warranties, including without limitation, implied warranties or conditions of merchantability, fitness for a particular purpose or non-infringement of intellectual property or other violation of rights. Further, we do not warrant or make any representations concerning the use, validity, accuracy, completeness, likely results or reliability of any claims, statements or information in this note or otherwise relating to such materials or on any websites linked to this note. We act as advisors to Arianne Resources and own shares purchased in the open market.
The content in this note is not intended to be a comprehensive review of all matters and developments, and we assume no responsibility as to its completeness or accuracy. Furthermore, the information in no way should be construed or interpreted as – or as part of – an offering or solicitation of securities. No securities commission or other regulatory authority has in any way passed upon this information and no representation or warranty is made by us to that effect. For a more detailed disclaimer, please go to http://house-mountain.com/disclaimer/.
