On Commodities and Fertilizers

For a start, just teaser for everyone:

1. Jim Roger is a firm believer in the commodities. He admitted that volatility of the commodities still exist but he also believe that the general trend of commodities is upward.

2. China with its bursting population growth will need to produce more food to feed its population.

3. Talks about importance of commodities is all over the papers. You cannot possibly miss it!

4. Though land is not scare, but I believe that farmer's - plot ratio has a optimal figure because nowadays not many people are still engage in this work of being a farmer.

In this post, I am not going to delve into discussion on the impact of commodities. I am moving down the value chain further and the area that I am looking at is:

"FERTILIZERS"

I believe that this is an important yet often neglected industry. It may not be an exciting business but its relevance in the world facing food shortage should spell "OPPORTUNITY" for investors who takes a long term view of the unfolding events around the world.

Just browsed through a IFA report on the "Fertilizer Industry in China" and I will like to share the findings on the long term trend of fertilizers by the authors.

1. Population increase in China will continue to drive increase in fertilizer but at a slower rate.
2. Growth in the consumption of single fertilizers will not be rapid. Instead growth in the consumption of compound fertilizers will be the main contributor. The application of compound fertilizer will accelerate the consumption of P and K fertilizers.
3. The small quantity of organic fertilizer applied in China is the chief reason why the demand for P and K fertilizers to continue to grow and this has promoted the consumption of compound fertilizers.

Insofar, there are a couple of stocks that I am reading up on. Clean balance sheet with zero debt and growing EPS. They are:

1. China Agritech (NASDAQ: CAGC)
2. China Green Agriculture (NYSE: CGA)

I dont any position in them but they are definitely worth reading up.

Chinese Saying "Quenching the thirst by drinking Poison"

Came across this article in Business Times today and I think its a good reflection for many investors who have the perception that the future is going to be rosy from this point onwards.

An Ex-Morgan Stanly economist, Andy Xie is criticising Ben Bernake for his low interest policy which is fuelling the next wave of speculative capital that may cause the next global crisis. Critics of Ben Bernake low interest policy have been damning Bernake because even though he manage to steer the economy away from the worst possible economic crisis ever since the Great Depression, he is doing so at the expense of crumbling the financial system in the near future. The economist believed that Bernake is making decision based on "marginal considerations" that will help spur short term growth and employment instead of focusing on the soundness of the system.

The major flaw in Bernake policy is that the low interest rate will drive inflation as the low cost of borrowing will spur increases in asset prices. And to him, Bernake's action can be termed as quenching the thirst by drinking poison.

Andy prediction should be taken into serious consideration. Inflation usually tends to lag money creation and this lag could be more than 18months long. What will start to happen is a vicious wage-price spiral. Hot money inflows may stoke asset bubbles and once the money stop flowing, the bubble will bust again.

I believe this is a valid point and it should not come as a surprise at a time when so much money is being poured into the system. Very soon, the inflationary effect will be felt and there will be another set of problem for the government to resolve.

When one takes into consideration for the possible impacts of the current policy in the future, it seems that we are heading for another crisis. But one should also recognise that in view of a possible crisis, one should hold enough hoards of cash available to reap potential benefits that the crisis may present.

My plans are in place if this crisis that is being postulated is going to take place, have you thought about yours?