The Trading Congress:The future of agricultural commodities

This presentation was given by Bill Plummer, Founder of Range Wise earlier this week at The Trading Show Chicago.

As of late the press has begun declaring the commodity supercycle over. Looking to crude oil as an example, with the proliferation of fracking and new found reserves, it has fallen substantially since its heyday landing at around $80/barrel. Naturally, why shouldn’t traders be skeptical of commodities? However, as Bill pointed out, agricultural commodities may soon be on the rise.

With population growth exploding in the East and income per capita steadily increasing, Asian nations will find themselves with more disposable income. More disposable income translates to a shift in diets, from a primarily vegetable-driven diet to one that begins to rely on animal products as well. As the demand for farm animals increases, the demand for animal feed will too—and crops such as soybeans and corn will be needed. This population factor can best be seen in the early 2000s, as China and India expanded, corn and soybean prices spiked. Though little has changed in this respect between now and the beginning of 2000, one key factor is notably different—supply.

Until the late 2000s the world supply of agricultural commodities met the increasing demand from overseas, but recently the sufficiency of this supply has come into question. In the United States temperatures are reaching all time highs, precipitation is notably down across the country and more corn is being diverted to ethanol each year. In China the supply of arable land is decreasing and the amount of agriculture able to be grown has been significantly stymied. During all of this, the population continues to grow.

According to Bill, the timing of these two factors will lead to a sharp and continued increase in agricultural commodities, as demand spikes and supply is limited. Given that these types of commodities are highly uncorrelated with the more traditional constituents of a portfolio, they provide a bullish opportunity to diversify and one that should certainly not be overlooked.

-Original content provided by Akshai Rajendran, an on-site blogger at The Trading Show Chicago.