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Time to re-enter the agriculture trade?

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Temjin

Temjin

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I think so...and here is why I think so.

(Note: This is for longer term investors only. I may be a systematic short term mechanical trader who loves automated trading, but I do apply a different mindset here. :D)

- Fundamentals have not changed at all regardless of the global credit crisis / depression gloom and doom scenario. People still need to feed even regardless of what happens out there and agriculture stocks/futures have been beaten down as if they were banks!

- On the short term, it looks like the USD Index is turning back down again. Favouring oil/soft commodities as well as precious / base metals.

- Jim Rogers has started accumulating more commodities recently and said he would probably make more money from agriculture than gold. (http://jimrogers-investments.blogspot.com/). Do note that he is a crap short term market timer but almost flawless long term timer.

- Just check out some of the graphs below. (yes, I know bottom picking is pointless)

- And of course, there is no guarantee that it wouldn't fall further. Further forced liquidation or a resumption of the USD Index rally or massive deflation.






mooma1.png
 
Have also been looking at this as even a medium, but definately long term position.

Have been reading that farmers across South America have been struggling to get access to credit (sorry can't find the link). With other areas facing similar issues in that they may miss sowing deadlines for next years crops again due to lack of credit. This will clearly hurt supply.

Australian farmers although supported strongly with credit lines, are being hurt by environmental factors

http://www.theaustralian.news.com.au/business/story/0,28124,24605693-36418,00.html

We may face global recession, and people can stop building new houses and factories, and stop driving their cars to jobs they no longer have. But at the end of the day, we all still need to eat.

Still trying to work out the best way in to take advantage of this yet though.
 
Temjin as i mentioned in another thread how would 1 acquire commodities long term? whats the best vehicle for this? obviously futures and CFD's are out so what would the best option be? (im assuming long term means 3-5yrs+ eh?)
 
Ageo said:
Temjin as i mentioned in another thread how would 1 acquire commodities long term? whats the best vehicle for this? obviously futures and CFD's are out so what would the best option be? (im assuming long term means 3-5yrs+ eh?)
Click to expand...

There are plenty of vehicles as long as you have access to a reputable broker like interactivebrokers.

CFDs/Futures are unsuitable for long term investments for obvious reasons, such as high leverage, rolling contracts, interest on CFDs, etc.

I prefer non-leveraged method through investing in ETF (Exchanged Traded Funds) and/or ETC (Exchanged Traded Commodities) through the world stock exchange markets. It's like buying a share except you are buying the commodity index that tracks it price rather than a company that has a business in that particular commodities.

You can also invest in companies that specifically produce these commodities with their earnings completely related to the price of these commodities. So they tend, but not always, track the underlying commodity prices and may have a leveraging effect on it. The "not always" part has been occuring over the past few months where companies such as gold mining firms aren't performing as good as the commodity they are producing for various reasons.

Here is a complete list of ETFs availabe on the US Stock Market.

http://seekingalpha.com/article/101365-the-complete-list-of-commodity-etfs-etns

Here is another complete list of ETFs/ETCs available on the London Exchange Market.

http://www.etfsecurities.com

Make sure you understand the risks involved before investing, especially with ETCs products from etfsecurities.com. There was a recent scare where their products were no longer "tradable" as their underlying guaranteer went broke. (i.e. AIG)
 
I have been reading up on ETF's and ETC's but its still foreign to me. I understand you can trade the GOLD ETC on asx but im unaware of any other commodities you can trade on the asx.

I would still prefer to trade within the Australian market as im more comfortable with that.

The problem with commodities like oil, agriculture etc.. unlike gold where you can buy physical and store its highly unlikely to do that with those others soft commodities.

How long you been trading ETC's temjin?
 
Another problem with buying ETF's from say the american stock market is that you are exposed to the fluctuations in the currency exchange as you will be buying in US dollars. Hence if the ETF performs well but the Aus dollar strengthens against the us dollar, it negates the gains. Any thoughts on this?
 
Ageo said:
I have been reading up on ETF's and ETC's but its still foreign to me. I understand you can trade the GOLD ETC on asx but im unaware of any other commodities you can trade on the asx.

I would still prefer to trade within the Australian market as im more comfortable with that.

The problem with commodities like oil, agriculture etc.. unlike gold where you can buy physical and store its highly unlikely to do that with those others soft commodities.

How long you been trading ETC's temjin?
Click to expand...

You are right there there aren't any other commodities you can trade on the ASX through ETF vehicles, except for GOLD.ax.

Unfortunately, the Australian market is too small and immature to establish a physical/future based index tracking ETFs for other commodities. It is unlikely to happen over the short term in my opinions. Therefore, if you wish to diversify into other commodities, you will DEFINITELY NEED to look oversea. Remember that Australian stock market only account for merely 3% of the global share.

So continue to educate yourself on these investment vehicles and weight the pros and cons of investing in these vehicles. You get far more options/diversification than just trying to invest in Australia alone.

And yes, the only physically backed ETFs/ETCs are only available for precious metals such as gold, silver and platinum and they are priced directly off the metal spot price. Other commodities such as energy, livestocks, grains and softs cannot be backed physically and thus, their related ETFs are priced off their underlying commodity future markets. So unlike the physical backed ETFs, they carry a degree of credit risk as the commodity contracts are purchased and backed by the same company. (i.e. AIG in this case for etfsecurities) Luckily, when AIG was on the verge of collapsing, it was deemed as too big to fail by the US government and they saved the day. I was ok since I was investing in physically backed ETFs anyway.

As for how long I've been trading ETFs, not long. Since early 2007 when I opened my interactive brokers account and went straight into ETFs.

rowie said:
Another problem with buying ETF's from say the american stock market is that you are exposed to the fluctuations in the currency exchange as you will be buying in US dollars. Hence if the ETF performs well but the Aus dollar strengthens against the us dollar, it negates the gains. Any thoughts on this?
Click to expand...

Ironically, when commodity ETFs do well, the value of the US dollar tend to drop because it has a historical negative correlation with commodities. That is why people like Jim Rogers and others recommend people to hedge against inflation (i.e. drop in USD value) by investing in hard commodities.

As a way to mitigate this, interactivebrokers allow one to "borrow" US dollars to purchase USD denominated shares. Because you are borrowing the currency, any fall in the value of the dollar would be a gain to you when you convert them back to your base currency. Note that only your initial investment is hedged this way, any extra profits would not be hedged and be subjected to currency fluctations.

If you have a certain amount in your IB accounts, your cash in AUD as base currency will earn certain interest while your "negative" cash in USD (borrowed) will attract interest. So depending on the spread they charge and the interest rate for each currency, you may break even from the interest cost. At least for the past few months, the interest cost has been negative, that is, providing me with a small gain, for me since the interest rate here is much higher than the rate in the US.

Please note this is not a recommendation to invest in ETFs. You should consider your own circumstances and do your own research before making any decisions. The risks involved in ETFs/ETCs are different for investing in individual companies. While I am moving toward becoming a financial planning one day, I doubt I could give such "advises" any time soon. :) (given the amount of compliances and limited "recommended product list" available)
 
Hello friends,

I had been away from agriculture market. Thanks for the updates. I was trading in commodities and agree products before. But due to some reasons i had left trading agriculture products.
 
Thursday 6 November 2008

> - Just check out some of the graphs below.
> (yes, I know bottom picking is pointless)

Pointless, yet you still recommend it?

Just a different POV: it is the trend of any market
that determines its viability for producing profitable
returns.

Granted, the grains are near support, depending
upon one's timeframe, but there is no indication
that price still cannot go lower. The trend is still
down.

Another consideration, when and once the trend
does stop declining, how long will it take before a
clear bull market gets underway? Months? Years?
For how long do you [generic] want to tie up your
capital and expose it to risk?

If you, and even Jim Rogers, were to look at an
annual, or semi-annual chart of the CRB Index, you
would see the most massive reversal ever recorded
in commodities. [In fact, I already pointed this out
to Rogers over a month ago.]

It takes time to transition from a bear market to a
bull market, and there are no signs that this bear
market is transitioning, let alone ending.

Just some thoughts.
 
The Edge said:
Thursday 6 November 2008

> - Just check out some of the graphs below.
> (yes, I know bottom picking is pointless)

Pointless, yet you still recommend it?

Just a different POV: it is the trend of any market
that determines its viability for producing profitable
returns.

Granted, the grains are near support, depending
upon one's timeframe, but there is no indication
that price still cannot go lower. The trend is still
down.

Another consideration, when and once the trend
does stop declining, how long will it take before a
clear bull market gets underway? Months? Years?
For how long do you [generic] want to tie up your
capital and expose it to risk?

If you, and even Jim Rogers, were to look at an
annual, or semi-annual chart of the CRB Index, you
would see the most massive reversal ever recorded
in commodities. [In fact, I already pointed this out
to Rogers over a month ago.]

It takes time to transition from a bear market to a
bull market, and there are no signs that this bear
market is transitioning, let alone ending.

Just some thoughts.
Click to expand...

Of course, I'm not recommending it. The topic was to discuss whether people think it is a right move right now or not. In fact, I have not made any trades on this yet.

I already said there is still a potential for further fall and perhaps extended stagnation as the deflation force is still winning right now. Inflation is losing BADLY right now and the hyperinflation scenario, which I believe will happen one day, is probably still many months or years away.

By the way, did you copy and paste the above here or they are your personal comments? So you know Jim Rogers in person or you simply let him know through other means? If you understood him, you would have known he is a long term, big picture person and has little regards for short term speculations. Like I said, he is an extreme bad timing person and admit he could never pick the exact top/bottom.

As for signs when the bear market will transit back to bull, no one will ever know with 100% certainty and it would be naive to assume one could ever predict it. That's the risk you take for investing/trading, preparing to get out if you are wrong.

It also depends on your trading timeframe. If you are playing short term, maybe there is a case for the extremely oversold condition in commodities, and not just agriculture right now. That really depends on your trading system and the criteria you use to enter the trade. Then we go back to discretionary and/or mechanical trading system talk, which is not my main concern here.

But when we are talking about long term, Jim Rogers is definitely extremely bullish with it and he had valid reasons to be so.
 
Nice thread Temjin, and agree, agriculture will be a great sector for the medium/long term. I think oil has similar fundamentals behind it as well

you've got
-world food supplies at the lowest levels in fifty years
-most farmers are older (how many 20 year olds want to be farmers?)
-population growing at 50 million per year
-an emerging middle class (studies show that as income passes USD10k, protein consumption increases significantly)
-food being burnt to power our cars


Temjin said:
As a way to mitigate this, interactivebrokers allow one to "borrow" US dollars to purchase USD denominated shares. Because you are borrowing the currency, any fall in the value of the dollar would be a gain to you when you convert them back to your base currency. Note that only your initial investment is hedged this way, any extra profits would not be hedged and be subjected to currency fluctations.

If you have a certain amount in your IB accounts, your cash in AUD as base currency will earn certain interest while your "negative" cash in USD (borrowed) will attract interest. So depending on the spread they charge and the interest rate for each currency, you may break even from the interest cost. At least for the past few months, the interest cost has been negative, that is, providing me with a small gain, for me since the interest rate here is much higher than the rate in the US.
Click to expand...

I like this idea, but do you actually own the shares (or ETF) or does IB remain the owner?
After seeing what happened to those in OPES I'm a lot more careful now. It seems on their webpage that as long you are under $500,000 you are insured. http://www.interactivebrokers.com/en/accounts/accountProtection.php?ib_entity=llc
 
Temjin said:
- Jim Rogers has started accumulating more commodities recently and said he would probably make more money from agriculture than gold. (http://jimrogers-investments.blogspot.com/). Do note that he is a crap short term market timer but almost flawless long term timer.
Click to expand...

As soon as i saw the title of this thread, I knew you would mention ol Jim, I would recommend subscribing to this youtube channel for his interviews

http://au.youtube.com/user/RemiG2006

^ this person has basically all of his interviews, and uploads new ones generally within a day (if not hours) of him doing an interview.

One thing I would like to get my hands on is some sugar. Do IB allow you to purchase it, is there a ETC for sugar? Im not too keen on building a warehouse to store it....


@Jet328
Its important to realize the potential opposites to those facts

such as:
> Increased automation on farms (I saw on TV the other day a farm that used lasers to find the nipples on a cow so it could attach a suction cap. No more seat and bucket)
> Improved crops (e.g. ultra genetically modified crops producing more product)
 
jet328 said:
-most farmers are older (how many 20 year olds want to be farmers?)
Click to expand...

I'm definitely thinking about it, but not the same old style. :D Developing a hobby for it right now to see how viable it is.

jet328 said:
I like this idea, but do you actually own the shares (or ETF) or does IB remain the owner?
After seeing what happened to those in OPES I'm a lot more careful now. It seems on their webpage that as long you are under $500,000 you are insured. http://www.interactivebrokers.com/en/accounts/accountProtection.php?ib_entity=llc
Click to expand...

Great question. I have not really digged into the risk from the broker side but I do have good confidence in IB to maintain their business viability in the midst of this financial crisis. I have been receiving a lot of "reassurance" emails from IB on how secure their fundings are and how they have "nil" exposure to any CDS/derviatives/funny papers to hold their cash assets for their clients. Of course, I have not verified it and such emails should be taken with grain of salt. But given the size of IB and how many professional (and legendary) traders use them, it does some sort of confidence.

I had been focusing on the risk from the ETF PROVIDER side in terms of their credit risk and risk of default on their obligations. AIG with etfsecurities has been the biggest event so far on this and like I said, I was lucky enough not to be exposed to it when it had happened.

Naked Short said:
As soon as i saw the title of this thread, I knew you would mention ol Jim, I would recommend subscribing to this youtube channel for his interviews

http://au.youtube.com/user/RemiG2006

^ this person has basically all of his interviews, and uploads new ones generally within a day (if not hours) of him doing an interview.

One thing I would like to get my hands on is some sugar. Do IB allow you to purchase it, is there a ETC for sugar? Im not too keen on building a warehouse to store it....


@Jet328
Its important to realize the potential opposites to those facts

such as:
> Increased automation on farms (I saw on TV the other day a farm that used lasers to find the nipples on a cow so it could attach a suction cap. No more seat and bucket)
> Improved crops (e.g. ultra genetically modified crops producing more product)
Click to expand...

Yeah, I subscribed to Jim's own blog where I would get regularly feed on his latest interview scripts or whatever public words he get out.

As for your hand to get on some sugar, you have fairly limited options.

iPATH DJ-AIG SUGAR TOTAL RETURN SUB INDEX-ETN with stock symbol SGG

or

http://etfsecurities.com/csl/classic/etfs_sugar.asp through the London Exchange Market.

Both track the same index for sugar futures.

Note that both of these ETFs carry credit risk and is probably more significant through etfsecurities as AIG has recently asked for another bailout again! I am steering well away from securities offered by them, except for the one that has physical backing.
 
Temjin said:
Note that both of these ETFs carry credit risk and is probably more significant through etfsecurities as AIG has recently asked for another bailout again! I am steering well away from securities offered by them, except for the one that has physical backing.
Click to expand...

Those options are not the most comforting, I wonder what Jim does to buy his stuff.

I also dont think that Jim Rogers himself would do that blog.
 
Naked shorts said:
Those options are not the most comforting, I wonder what Jim does to buy his stuff.

I also dont think that Jim Rogers himself would do that blog.
Click to expand...

Yep, none of them are very comfortable options right now. :)

I believe Jim Rogers invest through the future market. He does not need to invest in ETF/ETCs due to the size of his fund. Why the hell does he need to pay an "adminstration" fee on these ETFs anyway?

And for the blog, probably true. I would assume someone update it with his latest public news.
 
jet328 said:
Nice thread Temjin, and agree, agriculture will be a great sector for the medium/long term.
Click to expand...

Yeah, I agree.

you've got
-world food supplies at the lowest levels in fifty years
-most farmers are older (how many 20 year olds want to be farmers?)
-population growing at 50 million per year
-an emerging middle class (studies show that as income passes USD10k, protein consumption increases significantly)
-food being burnt to power our cars


I like this idea, but do you actually own the shares (or ETF) or does IB remain the owner?
Click to expand...

Good point. I grew up in agriculture... Dairy, Beef, Pork, Sugar, Fruit & Veg. But the days of the family farm are pretty much gone. The new generation of 'family' farms are corporate family's.


Temjin said:
I'm definitely thinking about it, but not the same old style. :D Developing a hobby for it right now to see how viable it is.
Click to expand...

Good-on-ya Temjin. What crops are you considering?

Naked shorts said:
One thing I would like to get my hands on is some sugar. Do IB allow you to purchase it, is there a ETC for sugar? Im not too keen on building a warehouse to store it....


@Jet328
Its important to realize the potential opposites to those facts

such as:
> Increased automation on farms (I saw on TV the other day a farm that used lasers to find the nipples on a cow so it could attach a suction cap. No more seat and bucket)
> Improved crops (e.g. ultra genetically modified crops producing more product)
Click to expand...

Yeah, there's plenty of technology available, but the Aus Sugar industry is facing tough competition from cheaper producers like Brazil. I think Aus production will be down a bit again this year and with Brazil going crazy with ethenol, there could well be a sharp shortage of sugar soon.

I heard early in the year there was a company buying up land around Bundaberg (Qld) and probably other areas as well, with the intention of becoming a listed horticultural company. Not sure what has become of it, but will have to find out.
 
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