Okay trendy people, have you heard of the Paleo Diet yet? It's essentially based on the idea that we should all eat like our ancient ancestors the cavemen did. Despite the problematic fact that cavemen only lived for about 2o years, it is touted as the world's healthiest and lets you eat a lot of meat.
Meanwhile, back here on Earth another meat-eating trend is also winning converts, only this one has to do with investing, and fund managers like Tim Parker at T. Rowe Price is in for a double helping.
"You can argue it's a crowded trade in the sense that people understand that people want to eat food and prices have gone up," the manger of the New Era Natural Resources fund (PRNEX) says, "but it doesn't feel really crowded in that some of my peer funds don't focus on it the way we do."
And how would that be?
Fertilizer and potash. "It's not that easy to find equities to play agriculture or livestock production, meaning there's just not that many pulic companies and they are not all are terribly well-positioned, says Parker."
As a self-proclaimed low-turnover, long-term investor, Parker has had a few chances to make and lose money in Potash (POT) over the past 5 years, but he simply says you need to have flexibility around your core positions and the ability to let them ride for several years. He says "that's the way you have your biggest winners."
Mosaic (MOS) is another of his ag-fert-food picks and here it is all about yields, or more precisely, lack of yield outside the U.S.
"The big issue is in the U.S. we really do have world leading yields because we have combination of good soil, we fertilize the way we should, and have the best equipment too. But the rest of the world doesn't have that access to capital or know-how and that's the real issue with farming around the world," says Parker.
"In China for example, there just aren't tons of corporate farms, there are a lot of small farmers so it's hard to get the message out. It's just hard to grow productivity globally," he adds.
Add in increasingly scarce, arable land and ever-growing global GDP that sees people trading up the food chain towards meats and better foods, and Parker says "the only thing to do is increase productivity and that's what makes us pretty optimistic about the demand for things like fertilizer."
To that point, Parker also owns Monsanto (MON) and feels it is at a good point in an ever-evolving product pipeline following some recent missteps.
He also likes the Chemical & Mining Company of Chile (SQM) - an emerging market play on an emerging market theme. Not only does this South American potash brines have an energy/cost advantage due to the fact that it can air dry its potash beneath the mountain sun but it also has what Parker calls "a kicker".
"And the kicker to the SQM story is lithium which is used conventional markets like pharmaceuticals, cosmetics, and greases,but longer term that can be part of the lithium battery story if indeed lithium batteries take off in automobiles," he explains.
As logical as it all sounds, Parker says it can be very tricky due to the vagueries of things like the weather and underlying commodity price swings, but he's still undaunted and has about 5% of his fund's assets committed to the story.
What about you? Do you buy the global Ag story or feel it's a little too much to swallow?
- emerging market
- arable land
- back here on Earth
- lithium battery