Old McHedgeFund now has some farms

by Michael Arbow, MBA

Partner, RSD Solutions.com

www.RSDsolutions.com

info@RSDsolutions.com

 

Occasionally this blog talks about the rising cost (real and nominal) of the soft commodities (food) and has also pointed out that farmland is becoming an alternative asset in the investment portfolios of billionaires; well it looks like hedge funds are now moving down on the farm.  It is estimated that US farm land will be increasing at a rate of between 5-10% per year in the foreseeable future.  Add onto this the return of the food grown and farmland is looking pretty attractive.  Of course the road will be rough (volatile) but the trend is entrenched as long as the wealth in China and India and numerous other emerging markets increases.

 

Where does that leave the food processors; the candy makers, the bio-fuel creators and the brewers? Well for them, the future will be filled with uncertain prices and shifts in consumer tastes towards alternatives.  Budgeting and price forecasting will become more uncertain as will consumer tastes as demand destruction begins to control the markets.  This world is no longer on the horizon, it is here and the hedge funds know it and are making plans to profit from it.  Meanwhile for commodity users: are they ready, has the risk team and the Board updated themselves with viable alternatives to reduce the worry and volatility, are hedging strategies been re-visited?  According to the attached article, time is running out.

 

For more on this story follow the link to The New York Observer article:

http://tinyurl.com/4yvgend

In the tank or on the plate? Bioenergy vs. Food. It's game on.

by Michael Arbow, MBA

Partner, RSD Solutions Inc

www.RSDsolutions.com

info@RSDsolutions.com

 

 

Jeffery Rubin in his book “Why your world is about to get a whole lot smaller” talks about triple digit oil prices and the effects this will have on our economies one being the push to bio-energy; energy derived from plants such as corn, sugar cane, palm oil.  Interestingly as the price of these commodities has risen the Chinese have sought out other plants capable of producing an oil substitute.  They have recently moved to and focused on cassava, a tropical plant whose root we use for animal feed, tapioca pudding and ice cream.  While the ingenuity is admirable the effects of this and new government regulations forcing the consumption of bio-energy is having distributing ramifications namely a growing trade-off between crops for fuel or crops for food.  The upshot of this is an unstable equilibrium in food commodity prices which looks set to continue for the foreseeable future.

 

What all this means to the food processors and bio-fuel makers is that price volatility may become the new normal and having a better economic understanding of price movement causality may be beyond the skill sets of the accounting department and conceivably the more traditional risk management team.

 

 

For more on the food/energy trade-off click on the link to a New York Times article:

http://tinyurl.com/3b6tfgz

 

For more on Mr. Rubin’s thoughts on energy prices, click on the link:

http://www.jeffrubinssmallerworld.com/blog/