Eastern Promises - Opportunity in Agricultural Commodities
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February 16th, 2008 by AdvisorAnalyst
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Feb. 15, 2008 - Joe Friesen and Marcus Gee of the Globe and Mail published an excellent article Eastern Promises on how demand for all things agricultural commodities are being driven by growth from Emerging Markets. The piece features commentary by Don Coxe, Chief Investment Strategist, BMO Capital Markets, on food and the agricultural boom. This piece features lots of anecdotal and empirical information.
Here are some excerpts:
India’s consumption of pulses — yellow peas, lentils, chick peas, green peas — has doubled in a year. In a country where millions are strict vegetarians, pulses are an essential protein source that go into the preparation of dal, which is cooked every day in millions of homes. India’s struggling, still backward farm industry can’t keep up with the demand.
“It’s not our part of the world that changed things, it’s the millions of people over there that are no longer content to get along with a bowl of rice and a few loaves of bread. They’re adding meat and dairy to their diet and we aren’t producing enough feed grains, enough vegetable proteins, to supply their need,” said Donald Coxe, global portfolio strategist for Bank of Montreal.
“Milk is the new oil. Milk demand worldwide is rising faster than oil demand. That’s because of the new Asian middle class.”
“Western Canadian farmers, unless they have an all-out crop failure, are going to have the biggest year in their history,” Mr. Coxe said.
Mr. Coxe said the rise in living standards in India, China and other parts of the developing world, as well as the sudden explosion in demand for corn to make ethanol for gasoline in the U.S., have put a squeeze on markets that’s making all cereal crops and vegetable proteins more expensive.
“So the way I sum it up,” Mr. Coxe said, “is the world is roughly in the position of a family that gave their son who was going to Las Vegas all the money they had and told him to put it on the dice table. He has rolled four consecutive sevens. He has left all the money on the table and now he’s rolling the dice again.”
“We are facing the real possibility of the worst global food crisis for which we have records.
“When people ask me what’s the biggest threat facing China — it’s food price inflation. The consumer price index in China (6.5 per cent) is now the highest rate in many, many years. If you take the food inflation out of it, their inflation rate is closer to 1 per cent.”
Read more from the author/contributor here.
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