Global Food Crisis Investing: A TFN Smart Trading Video

Posted June 14, 2008

In the looming global food shortage lays opportunity for the wise investor. Mike Burnick reveals some surprising places to look for big gains.

By Laura Cadden, TodayFinancialNews.com

Baltimore — (TFN): The following is taken from this week’s Smart Trading video featuring Mike Burnick.

Laura Cadden: The World Bank estimates that global food prices have increased by 83 percent over the past three years. The U.N. Food and Agricultural Organization has listed 37 countries as facing a food crisis.

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The crunch will be felt most particularly in the emerging nations where as much as 60 percent of the income the countries make is spent on food as opposed to 20 percent in most developed countries.

Rice prices for one have been trading at above $1,000 per ton for the first time. Exporters like China and India have imposed restrictions. Sri Lanka and Bangladesh have to look elsewhere for the 600,000 tons of rice they were planning to import from cyclone devastated Myanmar.

In this situation, where does opportunity lie for investors? I’ve invited Mike Burnick, Global Analyst of Market Shock Trader.

Mike, you were writing about rice prices even before the recent tragedy in Myanmar. Do you think prices will continue to climb?

Mike Burnick: Yes. As you pointed out, the tragic cyclone that devastated Burma really is going to turn it into a net rice importer where traditionally they’ve always been a large exporting nation. That whole region of the world is very big into exports for rice. Thailand included — which I’m very bullish on for the same reason really.

That’s really going to have an upward pressure on the price of rice for quite a while. The benchmark if you will, Thai rice, traded above $1,200 a ton just earlier this week. So it is a situation that’s going to be a crunch for a while to come.

Laura Cadden: Where do you think investors should look for opportunities in this situation?

Mike Burnick: Well, actually it’s kind of a cliché that wherever you find crisis in the world there’s usually opportunity to be found, as well. In this case Thailand, as I mentioned, I’m very bullish on. Thailand’s the world’s largest rice exporting nation. Right now they’re exporting about one million tons of rice each and every month. So they’ve really cranked up their operations there to take advantage of it.

That’s refreshing because China, India, and other countries have imposed bans on exports of agricultural products trying to keep more food at home and the home market, but of course, that tends to just backfire. Artificial price controls don’t work – we experimented with that in the 1970’s and it didn’t get us much but long gas lines. So it’s the same situation here.

Thailand, to their credit, the government there is committed to being free traders. In fact, they think it’s a great opportunity for their farmers to export to world markets.

Laura Cadden: Now China of course imposed those restrictions because they were trying to cap inflation. You don’t think that’s going to be a fear in Thailand?

Mike Burnick: Well, no, I don’t think so. Thailand has got a very dynamic and fast growing economy. Sure inflation is a problem throughout the developed world, as well as the emerging markets. The average per capita income in places like Thailand or China or India, for that matter, most of that disposable income goes towards just the basic necessities of life. Not only food, but energy costs as well, which have gone through the roof.

China has imposed restrictions on gasoline prices. They’re trying to hold gasoline prices artificially low. They’re doing the same thing with food.

And it’s not just in Asia. The same thing is happening in Argentina and other markets around the world. But as I said, those tend to always backfire and just lead to more food shortages.

We’re seeing that in Argentina, where they put export taxes on agricultural products, farmers are planting less because they’re not getting paid to take the risks to plant extra acreage. So it ends up backfiring in terms of lower grain.

Laura Cadden: Thailand was actually one of the original Asian tigers. What has taken so long for this economy to re-emerge?

Mike Burnick: Thailand actually had a great run as you know back in the 1980’s. Of course, they suffered like everyone did during the Asian currency devaluation in the 1990’s. It was sort f a long road back for them and they were just booming in the middle of the 2000 era when they had a military coup in 2006. The military within Thailand threw out the President at the time and basically plunged the country into chaos for about 18 months.

They had a botched attempt to cap the value of the currency, the Thai Baht, which was rising. They felt that it would hurt the economy. That didn’t work out of course. So interestingly enough, about six or eight months ago, they kind of came back to an open market or a democratic market system again.

They just had elections a few months ago back in March and they have a brand new parliament and Prime Minister installed, which actually is pretty much most of the same characters that were in the old government that was thrown out by the coup.

But that’s refreshing because they’re following the same open market policies that put Thailand on the map in the first place and led to really strong growth. So they’re back to more or less business as usual. At least, as usual as you can get in that part of the world.

Laura Cadden: Is there a specific way that investors can profit?

Mike Burnick: Well, actually there is a new ETF. You know I like ETF’s very much because they give you instant diversification and it’s a lot less risky than individual stocks since you’re owning a basket of companies rather than just putting all your money on one or two.

But interestingly enough, the folks at iShare have just launched a brand new single country fund that tracks the Thailand stock exchange index. THD:NYSE, I believe, is the symbol. It’s the iShare’s Thailand fund.

I don’t really think that’s the best way to invest though. I dug up another fund, an investment that actually trades at a slight discount to where the market is. So you can buy into Thailand using this investment I’ve uncovered and basically get Thailand on the cheap. About ten percent below the net asset value of the fund. Unfortunately, I can’t give you anymore details. My readers at Market Shock Trader would string me up if I did. But you can check my web site out and get more details there as a subscriber or follow this link to learn more about Money Shock Trader: http://www.isecureonline.com/reports/MSH/WMSHJ516
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