Healthy soil and sustainable growing

[<activism98201@verizon.net>]

'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."'

But we already knew this!  We know that it's ALWAYS true! :-)

But the rest of the article portends what's coming, and that's a redirection 
of money toward food production.  Expect food prices to rise.  This should be 
a boon to the local food movement (producers).


-Mark Nagel
Everett, WA

Source: 
http://www.bloomberg.com/apps/news?pid=20601039&sid=a25cAo8R8hjw&refer=home

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

Commentary by Andy Mukherjee

Feb. 20 (Bloomberg) -- 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.''

That may be as true for investors in agricultural commodities as it is for 
farmers, provided the former don't rely on the expertise of fund managers to 
beat the futures markets.

The worldwide boom in agricultural commodities, fueled partly by the growing 
use of food crops as alternative fuel and partly by soaring Asian demand, is 
proving to be a hard nut for professional money managers to crack.

According to a report last week by Merrill Lynch & Co. commodity strategist 
Francisco Blanch and other analysts, many of the actively managed funds 
focused on agriculture are failing to outperform gauges such as the S&P GSCI 
Agriculture and Livestock Total Return Index, which, when tracked passively, 
returned an impressive 28 percent last year.

By comparison, the Barclay BTOP50 Index, which monitors the performance of 
the largest traders, gained 8 percent in 2007.

``The promise of generating total returns by investing in agricultural 
commodity-related instruments has up to now failed to significantly 
differentiate from passive rule-based indices,'' the Merrill analysts noted. 
``Fund managers are likely to find increasing competition from low-cost 
rule-based investment strategies.''

Active Versus Passive

For now, money is rushing toward a perception of competence, regardless of 
eventual performance.

The ``managed futures'' business already has about $190 billion under 
supervision, almost a fourfold gain since the beginning of 2003, according to 
Fairfield, Iowa-based Barclay Hedge, which researches the industry.

But where is the compensation for investors for hiring the skilled fund 
managers, paying them hefty management charges (1.5 percent of capital) and 
performance fees (a 20 percent cut of profits)? Relatively inexpensive 
exchange-traded funds, which even retail investors can access, seem to be 
making more money.

The PowerShares DB Agriculture Fund, which tracks a Deutsche Bank AG index, 
gained 32 percent last year.

Such bumper returns are only to be expected.

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.

To extract the excess returns for agricultural commodities, investors may 
have to bypass the active fund manager and find an exchange-traded fund that 
tracks an index passively.

(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his 
own.)