How Will Agriculture Investments Be Affected by New Deadly Wheat Fungus?
Sol Palha

(Editor's Note: Now, on top of everything else that seems to be going wrong, a potential wheat blight. Please read carefully. Fortune favors the informed. - JSB)

The most dangerous people are the ignorant. - Henry Ward Beecher

A new deadly fungal threat

World wide grain production is already down this year and there are some estimates which suggest that this year's crop could come in 30% lower than last year's take. One of the main culprits is drought, which has been a major problem in the last few years. However now we have an even more sinister threat. The story below from the Los Angeles Times clearly points out what this threat is.

The Ug99 fungus, called stem rust, could wipe out more than 80% of the world’s wheat as it spreads from Africa, scientists fear. The race is on to breed resistant plants before it reaches the U.S.

The spores arrived from Kenya on dried, infected leaves ensconced in layers of envelopes.

Working inside a bio-secure greenhouse outfitted with motion detectors and surveillance cameras, government scientists at the Cereal Disease Laboratory in St. Paul, Minn., suspended the fungal spores in a light mineral oil and sprayed them onto thousands of healthy wheat plants. After two weeks, the stalks were covered with deadly reddish blisters characteristic of the scourge known as Ug99.

Nearly all the plants were goners.Crop scientists fear the Ug99 fungus could wipe out more than 80% of worldwide wheat crops as it spreads from eastern Africa. It has already jumped the Red Sea and traveled as far as Iran. Experts say it is poised to enter the breadbasket of northern India and Pakistan, and the wind will inevitably carry it to Russia, China and even North America - if it doesn’t hitch a ride with people first.

“It’s a time bomb,” said Jim Peterson, a professor of wheat breeding and genetics at Oregon State University in Corvallis. “It moves in the air, it can move in clothing on an airplane. We know it’s going to be here. It’s a matter of how long it’s going to take.”

Though most Americans have never heard of it, Ug99 - a type of fungus called stem rust because it produces reddish-brown flakes on plant stalks - is the No. 1 threat to the world’s most widely grown crop.

The International Maize and Wheat Improvement Center in Mexico estimates that 19% of the world’s wheat, which provides food for 1 billion people in Asia and Africa, is in imminent danger. American plant breeders say $10 billion worth of wheat would be destroyed if the fungus suddenly made its way to U.S. fields.

Fear that the fungus will cause widespread damage has caused short-term price spikes on world wheat markets. Famine has been averted thus far, but experts say it’s only a matter of time.

“A significant humanitarian crisis is inevitable,” said Rick Ward, the coordinator of the Durable Rust Resistance in Wheat project at Cornell University in Ithaca, N.Y.

Not only does the world have to deal with increased amount of land being allocated to ethanol producing crop, extreme droughts, but now it has to deal with this new deadly fungus that has the potential to literally wipe out a huge supply of the world's wheat. Let's not forget that inflationary forces are going to be raising their head strongly in the not too distant future. Remember how prices of flour and bread shot up when wheat started putting in a series of new highs from 2007 to early 2008? So if this threat becomes a reality, then we will have to add all the above factors, in addition to inflation, which means that there is a chance that bread could suddenly become a luxury item. If, like the new variations of viruses out there that are able to jump between species, this fungus mutates and starts attacking other grains, then the potential for trouble could be staggering. We are truly entering into a phase that is going to be completely unpredictable and painful for those that are unprepared.

Our analysis is revealing something very different this time. In the past, one could take broad measures to protect oneself against a potential threat, and while that is still generally the case, the situation this time will require fine tuning. In other words, one will not be able to just employ 1-2 strategies and fall asleep, constant monitoring will be needed for we are running full force into a stage that the world has probably never experienced before.

Under a normal inflationary situation, one can simply invest in hard assets and take it easy. While prices rise, so do wages, bonuses, your investments (real estate, etc.) and so even though inflation is around, one does not generally feel too bad. However let’s fast forward to the future world awaiting us.

Extreme inflation, a very tight job market (this means that salaries will actually decrease or remain stagnant due to intense competition for jobs), increasing taxes, and the cost of oil, gas, basic necessities, groceries, etc. will increase in leaps and bounds. Thus individuals will be getting squeezed from all ends.

Most gurus and market experts are probably going to make the mistake of assuming that this inflationary cycle will be the same as all those that have occurred in the past. Things are very different now, the population of the world has increased significantly since the Great Depression, debt is at extreme levels, new money is being created at a rate never seen before, serious climate changes are threatening food production, and there is a possibility of a full blown pandemic (so far we have two warnings - the bird flu and the swine flu) hitting the world.

The market in general starts to compensate for inflation and starts to rise, even though in real terms it might be just trading sideways. If one adjusts the currency to take inflation into consideration, one will find that at times the market is doing nothing. This time around, we feel that the Dow could actually take another severe beating instead of adjusting upwards to compensate for this inflation. If this comes true, every sector will get hit very hard. This of course will provide great buying opportunities in the commodities sector, but it is starting to look like (the key phrase is 'look like' as we need to gather more data) the only way to win in this market will be to position trade in the years to come. Position trade means taking a position for a certain amount of time and then closing the entire position out and waiting for the markets to settle down before opening up new positions.

What will most likely be immune to these wild swings will be the actual commodities themselves, thus bullion should hold up well during extreme corrections in the markets and will most likely rise, while stocks in the same sector will drop. For example Gold bullion could rise in value but Gold stocks could take a massive beating as was the case when the markets plunged earlier this year.

We are not trying to scare anyone, it never was our intention and it never will be; our intent is to always prepare our subscribers for the worst well in advance of the actual disaster hitting. Thus, if and when it strikes, we are ready to deal with it and are not caught with our pants down and are rears exposed to the flames. We are going to have to be extremely vigilant in the years to come as we are going enter a phase that almost no one has ever seen or experienced before.

Traders have 3 possible investment choices which they can use to take advantage of higher prices in the agriculture sector .

• COW. TO: This is more of a play on the Global agricultural sector and it trades on the Toronto stock exchange.
• DBA: It’s a play on Corn, Sugar, Wheat and Soybeans.
• MOO: The fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the business of agriculture, which derive at least 50% of their total revenues from agribusiness.

In this world there is always danger for those who are afraid of it. -George Bernard Shaw

Disclosure: We have no position in any of the listed ETFs though we have positions in Stocks that are directly connected with the Agricultural sector.

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