What’s that line legendary strategist Don Coxe likes to use? “The most exciting returns are to be had from an asset class where those who know it best, love it least because they have been burnt the worst?”
Grains and other agri commodities have been a vicious bear market in real terms. Technology has caused grain prices to resemble the price decline of a 80386 microprocessor chip. Whether it be from improvements in fertilizer and pesticides, to the introduction of self driving farm equipment, the modern farmer has become dramatically more efficient over these past few decades.
Could this chart simply continue moving infinitely higher? Sure, never say never. Maybe Monsanto will come up with even better super grain seeds to create the fountain of perpetual food. Maybe we will figure out ways to automate the remaining last few jobs left on the farm to squeeze costs even lower.I just don’t buy that progress can continue at this pace. I have no doubt that farmers will continue improving, but I suspect the large gains are behind us. The moves from here will be incrementally smaller.
Great technicians like Peter Brandt are raising the possibility a long term bottom might be forming. And then, shrewd macro traders like Raoul Pal, ( whose article on INDIA i published few days back )are advocating long grain positions from a fundamental perspective.
But few are talking about the real reason that grains offer a compelling risk reward from the long side. If this Central Bank experiment goes off the rails, we could have a return of 1970’s style inflation. That happens to coincide with the last great bull market in grains.