Posted by: mystressm | March 14, 2008

A Honey of an Investment

Deal Shopper

Yesterday while I was trotting up and down the aisles of my local grocery store doing my weekly shopping, I ran across and astonishing sale.

Local honey was on sale for a smoking good price. I couldn’t believe my eyes.

Obviously news of the impending international collapse of the honey industry has not yet penetrated as far as the wholesale purchasers for the major grocery chains. Otherwise, there is no way that they would be firing this particular commodity out the door at a loss-leader price.

The Alert

This is interesting, I thought. They must be clearing out the last of the previous year’s production out of their warehouses. Normally they would just replace it during the traditional honey harvest period during the summer and fall.

But not this year I thought.

I loaded my cart up with a couple of years worth of honey supply in preparation to hoard it. I am about to be the envy of tea-drinkers for years to come.

Market Timing

My interest is clearly well ahead of the market reaction – which makes it a good buying opportunity.

Bee Colony Collapse hasn’t even rated page 14 of the mass media yet.

The phenomenon is recent. Beekeepers started reporting that their colonies were dying in significant numbers just this last fall.

Market background

Bee Colony Collapse is swift. Within the course of a week, the bees from an afflicted colony vanish, deserting the Queen and unhatched brood.

Dr. Cox-Foster who is in the faculty of Entomology at the University of Pennsylvania recently testified before the US House of Representatives. She says in part “This disease shows a completely new set of symptoms, which does not seem to match anything in the literature”.

Bee Research

“Bees are leaving the hives to fly away to die. The few bees left inside the hive are carrying ‘a tremendous number of pathogens’ – virtually every known bee virus can be detected in the insects. Some bees are carrying five or six viruses at a time, as well as fungal infections.

Another unusual symptom is that normally when a bee colony gets weak, other neighboring bees will come and steal the honey & pollen. Other opportunistic insects or animals like to take advantage too. But none of this is happening. These opportunistic predators are not coming in – or if they do – it’s weeks later.

Normally beekeepers lose around 10% to an extreme maximum of 18% of their hives during a rough winter.

Apiarists are reporting loses of up to 90% of their colonies. The phenomenon is not restricted to the United States. Europe is also reporting similar frightening loses. Colony Collapse is just starting to appear in Canada. Wild bees are affected as well. Current estimates put the wild colony losses at over 95% in many parts of North America.

No one knows why.

Pending Disaster

Bee pollination is required for over 90 varieties of crops in North America. All our tastiest foods require bee attention – most of our fruits, squashes and almonds for example. Agricultural growers rent out about 1.5 million mobile hives a year for the purposes of pollination.

This year they are not available.

The farmers are getting desperate. Some of them are making the decision not to plant. Almond & apple crops, which are almost 100% reliant on bees, are blooming right now. Farmers are being forced to import valuable pollinator hives from Australia as a stopgap measure.

How can the investor take advantage?

This is a phenomenal opportunity to put money into agricultural products.

Food is not an optional extra. As a result the price of agricultural commodities will shortly reflect the decreased supply. Demand for agricultural commodities is fairly inelastic. There will clearly be consumer demand erosion when the prices of flowering crops start to rise significantly, but consumption will merely switch to non-pollinated plants such as wheat, soybeans & corn.

Increasing Demand

These alternative cereal food crops are already facing significant increase in export demand due to rising populations & standards of living in China & India as well as further pressures from the alternative fuel industry.

In fact many acres of corn & sugar which used to be devoted to food production have been diverted to the more profitable bio-fuel production. In 2007 – this represented 25% of the total (US) corn crop. In 2008 – it is predicted to take as much as 90% of the available crop.

Other Factors

It is expensive and time consuming for farmers to switch from the production of one crop to another. There is significant lead-time before the switch in commodity production can take place in reaction to market forces. It takes years for instance to grow a tree to production stage or before planted asparagus is at the harvestable. Additionally all the farm machinery & infrastructure has to be revised to accommodate the new crop.

Two Ways to Play the Market

Agriculture is, I have found, very difficult to space to place an investment in. This is because most of the access is through the FOREX futures exchange and is not an appropriate venue for the small or inexperienced investor.

The two places that I have found that hold significant promise is the exchange-traded fund DBA (PowerShares) which is traded on the AMEX. This ET fund is a basket of agricultural products.

Another way of playing the scenario is investing in the required farming infrastructure. Aging farming infrastructure in Canada and the US has suffered from a significant under investment – caused by recent low commodity prices that farmers are still recovering from. A very high percentage of it needs to be replaced or upgraded now.

But I’ve already made my investment. My supply of honey is assured for many years to come.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: