Which Ag Would Rogers Look at Right Now?

Which Ag Would Rogers Look at Right Now?

Inspired by the Jim Rogers interview I watched last night, in which he said he’d be most interested in whatever agriculture was down the most, I decided to look at the charts to see what’s down and out these days!

One longtime favorite of Jim’s, and ours, is rough rice.  I was fortunate to trade rice successfully on the long side during it’s big spike in early 2008.  Though I was not as fortunate when I again tried to enter the long side during the “false breakout” of mid-2011:

Rough rice price chart March 2012

WWJB (What Would Jim Buy?)  Rough rice is way off it’s 2008 highs.

(Source: Barchart.com)

In November 2010 at a global rice conference in Hanoi, industry experts expressed worries that the world would see a shortage of rice within the next decade:

“Projected demand for rice will outstrip supply in the near to medium term unless something is done to reverse current trends of slow productivity growth,” said Robert Zeigler, director general of the International Rice Research Institute.

“It does not look to be at a crisis level, but it’s possible that supplies will tighten a little bit,” Zeigler said.

Demand is rising at 1.5 percent a year, but productivity increases—which surged from the 1960s through the 1990s—have dropped to about 1 percent a year.

With demand for rice likely to outstrip supply for rice for the next decade (at least), the next breakout in rice prices could be a doozy.  And with decent price support at current levels, this might not be a bad time to punt on rice, either.

Over on the “softer” side of agriculture (sorry, couldn’t help myself), cotton appears to have fallen on pretty hard times.  To say that cotton is off its recent highs would be a bit of an understatement!

Cotton five year price chart 2012

NASDAQ cerca 2000?  Nope, just cotton.

(Source: Barchart.com)

The argument for cotton has been that acreage gets taken away in favor of higher-priced corn and soybeans (and rice to an extent).  This is exactly what happened in 2009 and 2010 – corn and ‘beans were the first to recover in prices, acreage went to them, cotton supply went down, and prices spiked.

Corn and soybeans are not exactly cheap right now either – with corn at six and beans in the lower teens, farmers are making some good coin on these crops.  So it’s unlikely they’ll replace this acreage with cotton at current prices.

The demand story for cotton has been similar to that of oil – it’s all about China and India.  The more cheap t-shirts they crank out, the more cotton they need!

The chart above is particularly appealing, as it exhibits the “falling safe that’s crashed” pattern that our pal Brian Hunt is so fond of (read his excellent piece How to Safely Trade Trend Changes for more on this trading strategy).

If you’re looking at the ag complex, rice and cotton look like interesting places to start your research – and chart watching.