HOLI HOGS, COFFEE, CATTLE AND BEANS – Commodity Crunch In Spring
Temasek’s move on Olam got my interest back into my favourite market segment – soft commodities that I was, err, a bit early on the uptake last year, saw some stars and exited before my favourite Coffee ran !
No use crying over split milk, not when it’s Happy Holi today(yesterday) in India, coinciding with St Patrick’s Day. We then have the spring equinox on the 20th of March and the Jewish Passover week till Saturday or so.
I dragged out the old commodity tables, did a 1 year comparison and voila, it is not coffee ! It’s lean hogs and feeder cattle (cattle ready for slaughter) and coffee.
I have a personal conspiracy theory on the pig story…. first, we had dead pigs in China – thousands and thousands of them in March last year.
In May, little known Chinese firm, Shuanghui International Holdings (now renamed WH Group Ltd), makes an US 7 bio acquisition offer for Smithfield Foods Inc, the world’s largest pork producer and processor which was approved in September, about the same time pork prices started its climb which cumulated into a steep ascent Feb this year.
Oh great, now who profits the most ? CHINA, sorry, I meant Shuanghui, oops, I meant WH Holdings.
7 billion dollars (actually only 4 billion, along with its debt for the rest) is cheap to pay for a country of 1.35 billion people to control the world’s largest supply of pork and errr, to pass their pollution problems to … errrr… another country. http://www.huffingtonpost.com/marc-yaggi/problems-persist-after-sm_b_4617980.html
Singapore can gloat the same way cashew prices soar and what a great feeling it is because PORK AND CASHEWS are surely more important than Facebook ? which China and Temasek cannot afford to buy for its 174 billion price.
My equation is that 1 Facebook = about 25 Smithfields which is a fictitious claim because we do not have another 24 Smithfield out there and enough pigs for them.
In times when we are just a bit tired of a rally that has lasted 5 years, even Goldman came out to say perhaps the “acceleration in the EPS growth rate at the index or sector level is unlikely”. http://blogs.wsj.com/moneybeat/2014/03/17/goldman-fuel-behind-the-five-year-stock-rally-is-running-low/
This coincides with global weather anomalies that is threatening our food prices in 6 months time as the United Nations warn of food security risks in Asia Pacific. http://in.reuters.com/article/2014/03/10/united-nations-food-security-idINDEEA2907820140310
Coffee has risen almost 80% this year alone, nearly single handedly dragging the DJ Agricultural commodities sub index (coffee, corn, cotton, soybeans, soybean oil, sugar and wheat) higher along with my favourite ETF DBA US (Powershares DB Agriculture Fund). Fret not, it is no where close to its highs yet.
DBA US EQUITY
I have maintained wrong that food is not substitutable which is a risk but Facebook is not ? Now we have lab grown beef and genetically modified crops but all the ingredients still come from plant and protein extracted from something and somewhere. And I can vouch that, of late, I have had some pork katsudon that tasted like cardboard or what I imagine cardboard would taste like and some shabu beef that had neither taste nor texture of meat. But governments cannot afford to mess around with food prices for the masses and so let it be cardboard then !
Besides pork prices will taper off by the second half by the looks of it although coffee will be a problem.
Lean Hogs Forward Curve into 2015
Coffee C (Arabica) Forward Curve into 2016
The only hedge I have for food is DBA US equity which is looking peaky at the moment, and surely not (AGAIN) coinciding with Temasek’s purchase of Olam to mark the top of the market ?
I will stick to the taste I can be sure of, that is my Macallans. That is until China buys them out just because Japan bought Jim Beam for US 16 billion ( roughly, 2 Smithfield but Japan does not have a pig problem) http://dealbook.nytimes.com/2014/01/13/suntory-of-japan-to-buy-maker-of-jim-beam-for-13-6-billion/?_php=true&_type=blogs&_r=0.
Life is all about food and drinks, isn’t it ?
Happy Spring Equinox in advance, Passover, Holi and St Patrick’s Day !
Congrats!
I remember reading somewhere about a comparison between Olam’s bond yield compression after Temasek’s takeover offer and another company which saw similar yield compression after being taken over by Temasek or another sovereign fund years ago.
Was it at your blog?
Hey,
Not sure. Wrote alot of stuff on Temasek over the years.
When was the last time they took over anything ? Can’t recall. They usually play shareholder role.
Does it mean Hyflux has chance ?
Straits Times mentioned about Stats Chipac which benefited from a lower yield – 4.3%? – because Temasek is the major shareholder (I believe they tried to privatise it many years ago but was unsuccessful).
What happened to the bond yields in that case?