Last summer’s burst crop market bubble is still dripping off farmers’ memories, but many long time commodity bulls are still bullish.
“The fundamentals are getting better for commodities. The fundamentals are not getting better for General Motors and Citibank,” said investor and commodity fund founder Jim Rogers in a recent television appearance, explaining why he’s still loading up on crop commodities.
“I own some gold. I’d rather buy silver today at today’s prices … but I’d rather buy agriculture than either of those two.”
Rogers’ views are echoed by several analysts who have long supported the notion of a long-term commodity bull market that was popular until last summer’s commodity plunge.
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Marc Faber, a Hong Kong based investment guru, is also still bullish on crops. In May, he told Bloomberg News that the stock market rally was a “bear run” and that commodities such as gold and agriculture were better investments for the medium and long terms.
He, like Rogers, predicted the surge in commodity prices that dominated most of this decade, and at the peak of the rally early last summer, expected a “correction” in prices.
The slump was more than he expected, but he was pleased to have called for a setback and has not changed his long-term bullishness on agriculture.
Bank of Montreal investment guru Donald Coxe is sticking with his support for a commodity bull market. He recently attempted to alarm people about the dangers of worldwide hunger should any major crops fail.
However, he’s more bearish about crops’ long-term ability to draw high prices due to aggressive efforts of many newly wealthy countries to buy and invest in agricultural land around the world. Those efforts will probably help crop importers avoid the sort of panic that gripped the world last summer when demand appeared to be outstripping production.
“We suspect that investors who spend time pondering this question will conclude that, over the long run, it should help to prevent sudden grain price spikes such as corn’s run-up from $2.50 to $7,” said Coxe in his June Basic Points newsletter.
And in the long term, over decades, he’s bearish on crop prices.
“Commodities’ share of global wealth and GDP will, across most economic cycles, continue their two centuries of decline,” said Coxe.
“Commodity stocks’ investment outperformance will occur during periods of rapid inflation (such as the stagflationary 1970s) but otherwise will be seen as mere aberrations and will be short-lived.”
These commodity bulls all generally feel that today’s economic conditions are similar to those of periods like the 1970s, when general economic and stock market performance was dismal but commodities soared.
In that environment, demand is suppressed but still present, allowing crop and other commodity prices to remain strong and to have multiple rallies.
And if inflation catches fire and the U.S. dollar slumps in value, commodities tend to compensate by rising at the same rate.
