Go Aggies!!

My slightly tongue in cheek prescription for 2008:

Buy ag and natural gas and take the rest of the year off.

Bloomberg: Food Is a Great Asset -- Minus the Fund Manager: Andy Mukherjee.

Quotes:

Investors can't afford to ignore food. As a hedge against a possible U.S. recession, and direct exposure to rising urbanization and wealth in Asia, it's an asset class that's tailor-made for the present times.

As Jim Rogers of New York-based investment firm Rogers Holdings puts it: ``If you're in agriculture, you don't know that there is a recession, you don't care.''

....

Global food inventories are running thin.

The amount of wheat, rice, corn, barley and other grains stored at warehouses around the world is enough to meet less than 60 days of global demand, a 35-year low, according to Merrill's analysis.

High Returns

Shortages are also emerging in the supplies of soybeans, palm oil and other oilseeds.

Slaughter rates are rising as cattle-feed prices soar.

All this should mean tidy profits for those investing in agricultural-commodity futures, provided they have the appetite for the higher risk of price volatility that's often seen in commodities where the stockpiles are small.

Gary Gorton, a University of Pennsylvania finance professor, recently demonstrated that inventories play a significant role in determining returns on commodity futures.

Gorton and his colleagues studied the performance of futures contracts on 31 commodities from 1969 through 2006, grouping them in portfolios of lower-than-normal and higher- than-usual inventories; the former returned more than 13 percent annually, while the gains from the latter were less than 5 percent.

`Chindia' Effect

Eventually, food supplies will rise to match the present elevated levels of demand. But it may take time because of the ``Chindia'' effect.

Millions of Chinese and Indian households are becoming a little more prosperous every year, and demand for protein is very income-sensitive.

That's bound to put further pressure on stretched food supplies. Investors have a chance to profit from agricultural commodities because their prices are still ``relatively low,'' Marc Faber, the Hong Kong-based investor and publisher of the Gloom, Boom & Doom report, said earlier this month.