How to Profit From Rising Food Prices

By Richard (Rick) Mills
Ahead of the herd

As a general rule, the most successful man in life is the man who has the best information

 

On Wednesday April 27, a group of anti-poverty demonstrators swarmed Barclays Bank headquarters in the U.K. to protest “reckless speculation” in the global food markets.

 

This follows food riots in Algeria, Tunisia, Mexico, Indonesia, India, Africa and Egypt which killed dozens of people.

 

Speculation is a small part of the picture.  Loss of arable land, drought and increased demand for meat are also significant catalysts to rising food prices.

 

But world population growth and three billion people climbing the protein ladder are the elephants in the dining room.

 

Our population has nearly doubled since 1970. We add 80 million people to our global population each year.  Tonight, there will be 220,000 new mouths to feed at the dinner table. Newly prosperous, urban populations in developing countries means more money in the household budget and a change of diet. These new middle class consumers forgo plant based calories in favor of adding more protein from meat and dairy products to their diets.

 

Rising food prices is a macro trend with a long term time horizon.  Investing in a macro trend has always been the most dependable way to make money.

Global Food Prices up

 

Investing in potash – the primary ingredient in commercial fertilizer – is the best way to profit from rising food prices.

 

In the last 60 days, the entire potash sector has undergone a major “correction” as the parabolic rise in silver and gold spot prices have lured almost a billion dollars a week into the precious metals sector.

 

Potash Corporation (POT-NYSE) – which controls 25% of global production - has declined 15% from its 2 month high.  The pullback in the junior explorers has been even more dramatic.

 

Here are two high risk/high reward potash companies – trading at radically discounted prices.

 

Western Potash Corp’s TSX.V - WPX measured and indicated resource rose 40% this week following a recent estimate at its Milestone property in southern Saskatchewan.

 

The new estimate raises the Milestone extractable potash resource to 64 million tonnes of measured resource and 180 million tonnes of indicated resource.

 

"Extensive parts of the property surrounding the defined resource remain to be drill tested,” stated Chief Executive Patricio Varas “our seismic data indicates substantially more potash is present."

 

WPX is Down

 

A few weeks ago Encanto Potash TSX.V - EPO released a NI 43-101 Technical Report with a solution mining total resource calculation of 139 Million recoverable tonnes.

 

EPO has a joint venture agreement with the Muskowekwan First Nations Band which streamlines the mineral rights process.

 

Factoring in an anticipated 15,500 acre land package expansion – given similar geology – the total potential recoverable KCL resource would be 260 million tonnes.

 

Potash prices are currently over $400 a tonne, so that’s about a billion dollars of product – not bad for a company with a market cap of $70 million.

 

Halp price sale

 

Gold has sex appeal.  Silver is industrious.  Copper is electrifying.

 

But food is the holy grail of all commodities.

 

Those who have it, consume it.  Those who don’t have it, crave it.

As the incomes in developing nations grow, the workers demand a more protein-rich diet, which means they eat more meat.  This has an amplifying effect on the demand for fertilizer, because it takes about 10 kilograms of grain to produce one pound of meat.

 

Land and Incomes

 

Potash is the perfect proxy for surging food prices.

 

The current major correction in potash junior explorers may be the last chance to ride this macro trend.

 

Inventories of most grains have sunk to historical lows. Our agricultural production shortfalls should be on every thinking person’s radar screen. Is it on yours?

 

If not, maybe it should be.

 

Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com

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Richard is host of www.aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, FNArena and Financial Sense.

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Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.

 Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard Mills does not own shares of any companies mentioned in this report.

Western Potash TSX.V – WPX and Encanto Potash TSX.V – EPO are sponsors of Richards website www.aheadoftheherd.com

 

 

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