The resumption of the “debasement trade” has the resource sector booming.
The timing has been fortuitous for the launch of our Grey Swan Resource Trader. So far, we’ve spent most of our time in precious metals, rare earths, critical minerals and energy. But the commodity complex is considerably larger than gold, silver, antimony, tungsten, uranium and oil.
Agriculture, for example, barely registers in financial markets. Agricultural commodities represent roughly 0.1% of global financial assets — an almost comically small allocation considering you encounter them all during your brief brush with breakfast.
Coffee. Orange juice. Wheat. Corn. Sugar.
The trouble is, investing directly in them can be a miserable business.
A farmer can do everything right and still get wiped out by three weeks of rain. A bumper crop can send prices tumbling. Drought, frost, floods and disease can reverse the equation just as quickly. Every crop has its own geography, growing season and particular meteorological neurosis.
And unless you have ambitions to become a commodities speculator straight out of a Hollywood comedy, there aren’t many convenient ways to speculate directly.
There is, however, another way into the trade.
Fertilizer.
Rather than betting on the weather in Florida, Kansas or Iowa, we can invest in one of the things nearly every farmer needs, regardless of what he grows.
And fertilizer itself appears to be breaking out:
This fertilizer chart is interesting for reasons beyond the price it shows.
Modern agriculture depends heavily on nitrogen, phosphate and potash to replace nutrients removed from the soil after repeated planting.
Synthetic fertilizers were one of the great — if largely uncelebrated — productivity breakthroughs of the 20th century. By some estimates, roughly half the world’s food supply now depends on them.
Fertilizer is one of those things civilization rarely thinks about until it becomes expensive. The mainstream media only took notice in March when the U.S. 5th fleet dropped anchor off the Persian Gulf. And only briefly then.
Once fertilizer begins to make the Fed’s self-imposed 2% inflation target impossible… everyone will notice.
When fertilizer prices rise, farmers face a fairly unpleasant choice: pay more or use less. Paying more raises the cost of producing wheat, corn, rice and virtually everything downstream. Using less results in smaller yields. Either way, pressure begins working its way through the food chain.
Energy adds another wrinkle.
Natural gas is a critical feedstock for nitrogen fertilizer, while mining, processing and transporting fertilizer are all energy-intensive. With energy prices already elevated, producers have another reason to raise prices.
Which brings us back to the chart.
Agricultural commodities may eventually become another beneficiary of the debasement trade. But rather than trying to predict whether Kansas gets enough rain or Florida escapes the next hurricane, we’d rather own one of the inputs the entire system requires.
Fertilizer sits beneath the crops. And right now, fertilizer is moving first.
That makes this breakout worth watching — and, increasingly, worth investing in. It’s a move years in the making.
Today’s Grey Swan Pro looks at one U.S. company with a cost advantage for rising fertilizer prices. Trading at 10 times current earnings, it’s got substantial upside potential for a higher-for-longer fertilizer trade.
~ Addison
P.S. This afternoon on Grey Swan Live!,we’re bringing back Jeff Opdyke.
A former Wall Street Journal writer, Jeff has been living and investing internationally for two decades. Jeff currently pens the Global Intelligence Letter from his home in Portugal.
Jeff has already joined our mission to create a global fraternity of thinkers, philosophers, and investors. On Thursday, he’ll share his unique view on America’s decline from abroad, providing critical insight ahead of the midterms.
If Japan is the canary in the coal mine for the bond market, America may be the canary in the coal mine for the political order. The midterms are approaching. The debt burden is rising. The old assumptions about U.S. exceptionalism are being tested in real time.
A program note: We will also be speaking at Jeff’s Summit in Dublin in October. The theme: how Americans can think, invest and live with more freedom when the old home-country assumptions begin to fail. More details to come.
Join us on Thursday as we chat with Jeff on Grey Swan Live!
