Agricultural Commodities bubble in the making

October 6, 2009 at 2:01 pm Leave a comment

Where will the next bubble going to be? This must be the question that every investor/speculator is asking.

My answer:Agricultural commodities.The reasons are as follow:

1)All bubbles start with a fundamentally sound storyline. Agricultural commodities has the storyline of emerging market demand. afterall, they need to eat and drink and the population is still growing faster than developed countries.
This story will be sold by the financial sectors to the public.

2) Financial sectors are beefing up their commodities desk. If not to trade commodities, then what?

3) Jim rogers,a long time bull on agricultural commodities has not altered his view.With his solid record and homework done, it is not wise to bet against him

4) Weather conditions has been bad lately. This will affect supply of crops and thus drive prices up. What better way to sell the story of agricultural commodities bubble than a simple supply less than demand situation.

5)I notice that Singapore’s leading stocks are Wilmar, Noble, Olam, all part of the agricultural commodities story. With CIC and Temasek getting into the act, expect more pension fund,insurance fund, mutual funds,etc to buy into these story and drive these stocks sky high until the bubble burst.

6) Bloomberg just revealed today that Warren buffett counts himself lucky to buy a farm products group, CTB, which he didn’t want to buy originally. CTB is now earning him loads of money compared to the price he paid in 2002. This shows that the competitive advantage of CTB has improved. Thus, the agricultural commodity story does indeed has legs.

Will i participate in this bubble? No, because i am not familiar with agricultural commodities and cannot keep close tab on the supply/demand situation. Also, the agri-stocks are quite fairly or slightly overvalued as i look at their P/E and P/B ratios


Entry filed under: Investing.

A Sincere Mistake Andy Xie ‘s Penetrating Insight

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