Mid-Day Notes: Agriculture & Natural Gas

As I touched on briefly in yesterday's Pub, natural gas typically experiences price weakness during the late summer. Couple that with the energy demand destruction that's occurring due to elevated price levels and today's pullback in gas shouldn't be a terrible shock. I'm still an energy price bull, but expect more data in coming weeks which will pressure energy prices somewhat. Plenty of time in coming weeks to buy dips in natural gas names.

Ag in Brazil

When I fly, I always pick up a few magazines at the airport which I don't subscribe to in order to read something different on the plane. U.S. News & World Report isn't in my regular rotation, so I took it to New York with me earlier this week and read an article which would be very useful to anyone interested in the global ag story: Brazil Becomes the New Food Superpower

We advise on siginificant assets in the global agriculture space, and one of the questions that routinely comes up regarding today's rising ag prices is: can't we just plant significantly more acreage to bring down prices? Worldwide, the answer is generally no, because the world's arable land base continues to shrink modestly as populations expand.

Brazil, however, stands as the exception: as we have explained to many audiences along the way, the country has an arable land base and climate which could allow Brazil to one day out-produce even the U.S., but the challenge in the short run is one of infrastructure. Currently, Brazil has neither the roads nor port capacity to allow it to feed emerging markets the way it one day will.

Those who, looking at today's ag prices and recent food riots, predict Malthusian outcomes of a world which won't be able to feed itself are as silly as they've ever been; in coming years the world will get ahead of today's agricultural supply/demand imbalances. That said, it will take a number of years to expand global infrastructure to a point which will allow that to happen. Brazil's current port expansion plans, for example, are roughly sketched out to occur over the next 10 years, but are fluid and unsettled due to ongoing political infighting.

Check out the above article. It does a nice job of explaining agriculture in Brazil, and the crossing of two of today's most compelling investment themes: food inflation and infrastructure.

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