I can hear the singing, courtesy of the cast of Oliver.
Food, glorious food!
Hot sausage and mustard!
While we’re in the mood —
Cold jelly and custard!
Pease pudding and saveloys!
What next is the question?
Rich gentlemen have it, boys —
And in 2013 and beyond, I think of food as the most potentially glorious investment one can make – on the consumption and on the production side of the food chain. I never understood why it is called food and agriculture – it should be called agriculture and food.
Demand Drives Supply
And therein lies the opportunity. No kidding. Wall Street treats the food and agriculture as separate, as if the availability of foodstuffs drives food choices. They have it backwards. It is demand for foods– certain foods – that is driving agriculture.
In the developed world, people want more and more of what they want, not necessarily what is available. Twenty years there was no way to buy fresh broccoli – not necessarily a bad thing – in Washington DC. Now it is flown in from somewhere all year round – at least at Whole Foods Market (NASDAQ:WFM). Twenty years ago, drinking coffee in a restaurant meant drinking brown water that might be hot. Now business meetings are held at Starbucks (NASDAQ:SBUX) and coffee has replaced tea on every street corner in London.
In the emerging world, changes are more dramatic. In the Big Three “emerging economies” – China, India, and Brazil – people can afford to buy more protein. Even if a recession hits, they will give up the new motor scooter or the DVDs of Baywatch reruns to keep chicken and pork on the table. When Americans increase their protein consumption, quinoa and lentil growers around the world benefit. When almost three billion people in the Big Three want more protein, US farmers benefit – greatly. If you don’t believe me, ask the World Bank – they track these things and at certain income levels in emerging nations people begin to eat more protein and never give it up. We are there – and by “we” mean hundreds of millions of people – in those three countries.
The bottom line: listen to someone you should usually ignore, Jim Rogers, who once told Maria Bartiromo to “trade that Mercedes for a tractor.”
Speaking of trades…you can make serious meal money trading food and agriculture.
Write Calls on Whole Foods
With food, think personal choice. The more personal the choice, the more individualized the delivery of a food to that choice and the more successful the company. The grocery industry grows a point or two a year – when lucky – and has net margins, on average, of less than two percent. Whole Foods is growing in double digits and has margins more than four times the industry average. I like the stock, if you buy it, write calls at least one strike and one month out. If you just want the calls, look two strikes and two or three months out.
Write Puts on Starbucks
The other super individualized outfit is Starbucks. Here I would write puts – the stock has put in a new bottom around $50, consider selling puts around that strike, if you get put the stock it is a bargain and then you turn around and sell calls.
Write Puts on Mosaic and Potash
What about agriculture? Again, think about selling puts on this volatile sector – and that volatility means big, rich premiums on stocks despite a calm market. Both Mosaic (NYSE:MOS) and Potash (NYSE:POT) are doing very well – look at puts January or later. MOS has a nice floor around $50, and POT has one around $37.50, so work with those short term support levels when selling puts.
And if you make some dough – pardon the pun, had to put it in (another pun, achhh!) somewhere – go out and get yourself a good meal or latte from your latest trades.
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