North American farmers, especially those in Western Canada, are going to have to get used to changing economic times.
“I know it’s not something they’ll be used to, but they are going to have a new problem to deal with. The problem of prosperity,” said BMO Financial Group global financial strategist Don Coxe.
Coxe has made a successful career out of analyzing markets and advising institutional and large investors about the world’s financial directions and trends.
He is finding significant opportunities in agriculture both in the near and longer terms and he believes producers are in a good position to profit from the trend.
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Ending stocks of grains and oilseeds have tightened in the past few years and that is creating potential for significant shortages, especially in cereals such as corn.
“We were already seeing nearly all of the world’s corn and feed grains having a market before ethanol. Add ethanol to the mix and it creates a whole new market issue.”
Coxe said after 16 years of average or better crops, the American Midwest is due to lose a crop.
“A weather disaster, a drought in the case of corn, is bound to hit eventually. When it does it will create a worldwide feed shortage. We will see $10, $11, $12 corn that year. Wheat will go with it. And until that happens, prices for these crops are moving higher.”
Coxe said that even with a record corn crop of 13 billion bushel or more, the futures market is signalling a December 2008 corn price of $3.91 US per bushel.
Dairy and meat are headed in the same direction because of Chinese and Indian demand for meat protein, he said.
“These are the same people that gave us $73 oil and $4 corn.”
Coxe said he knows the market and farmers have heard before that “the world is running out of food.”
He said the Green Revolution buffered those demands as the Third World modernized grain production and land use.
At that time there was plenty of under-used arable land on which to build capacity and economies with a rural workforce.
Today, the land depends on irrigation from aquifers, which are drying up, and the countries that were desperate for food, such as India and China, are now exporters, shipping everything from clothes to cars to the first world. Living standards in China and India are rising.
“There are 200 million more new entrants into the middle class in the last decade and the rate of new entrants is accelerating,” Coxe said.
Money to spend
Earlier this year there was significant discussion in the equity markets that John Deere’s stock was over priced at $110, said Coxe. The ability of food commodity markets to deliver profits to farmers is being credited with taking Deere and Co. stock to a new high of $136 last week.
“No doubt they are a good company. But it takes farmers with money in their jeans to pay for that equipment and the market is starting to recognize this.”
Coxe said two of the hottest commodity based stocks are located in Saskatchewan: Potash Corporation and Cameco.
A hot agricultural sector, combined with the booming oil and gas industry, will help the Prairie economy continue to gain strength.
“Farmers need to beware. Don’t go selling land to all those urban speculators that are going to come knocking over the next year or two. That good farmland is going to be worth a lot more in the years to come,” he said.
