Wednesday, June 29, 2016

Growing population - Growing Farmland Productivity

The idea that world population is steadily growing is often cited as a reason to be long (bullish) agriculture technology / farmland / anything food & protein related. While I may not necessarily disagree with this logic (although, as someone who's seen a number of farm cycles up close and personal, I think some skepticism is warranted), the idea of food scarcity is often treated as self evident - excusing the need to cite hard evidence and facts. This has created a lot of distortion around the issue.

One of the biggest misnomers I see is that farmland productivity is a new issue. As I'll show below, the number of farmable acres per person has been steadily declining since at least 1960 (as far back as worldbank.org data went back). And if you want to go back further, the Reverend Malthus did his writings in 1798 (218 years ago, but who's counting?).

So, here is a quick overview of the world's food/farming situation in 5 quick graphs. All data was sourced from worldbank.org.

1. World population is growing - as it has been for centuries. As of 2015, global population had broken above 7.3 billion. Many analysts estimate there will be 9.5 billion men, women, and children on the planet by 2050, and more than 10.3 billion by 2100. That is a lot of mouths to feed. So where will all that food come from?


2. Arable acres (i.e. land suitable for agricultural production) peaked in 1992, and despite a recent uptick from 2011-2013, has held fairly steady for the past 24 years. It hasn't been more acres farmed feeding all those people . . .


3. As a result of rising population and slow (1960-1992) to flat (1992-2014) growth in worldwide farmable acreage, arable acres per person has been declining. In 1961, there were 1.2 arable acres for each person on this plant. Today, there are just 0.6 arable acres per person.


4. However, yield per acre has been steadily rising. Now this isn't a direct proxy, but looking at yield per acre for cereal grains gives us a good indication in the improvement in farmland productivity. Since 1961, yield per acre has jumped 173%. Acreage has been flat, but rising productivity per acre has kept the masses fed.


5. This all leads to looking at productivity (yield * arable acres) per person. Again, I'm using cereal grain yields as a proxy for the improvements in all of agriculture. What we see is that productivity per person has been rangebound since the early 1980s. In other words, the amount of "product" that an acre of farmland produces per global population member hasn't been declining - it has been in a fairly steady range for 36 years. Not the ominous downtrend (population outpacing productivity) that many would have you believe.


I'm not arguing that all is well in agriculture and we can just sit back and relax. Nor am I addressing some of the uses of ag commodities (i.e. ethanol) that are large beneficiaries of farmland productivity.

What I am saying is that yes, yields will need to be improved, but unless your investment time frame is 30-40 years (many will say yes, few will follow through on that commitment), be prepared for a wild ride along the way as the ag boom/bust cycle can be particularity viscous.


Harvest Investor © 2016. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Thursday, May 19, 2016

Stocks with low earnings volatility per unit of growth

The following tweet from Eddy Elfenbein (www.crossingwallstreet.com) prompted me to run a quick analysis on all the stocks in the S&P 500:


The criteria:
  • Companies currently in the S&P 500
  • Positive earnings in every year for the past 21 years
  • Calculate (simple) average 20 year annual EPS growth rate
  • Calculate standard deviation of 20 years annual EPS growth rate
  • Coefficient of variation = Standard Deviation / Mean Return (the lower the better)

Here, ranked by coefficient of variation, are the S&P 500 stocks with the lowest risk (standard deviation) per unit of growth.  Enjoy!




Harvest Investor © 2016. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Friday, May 13, 2016

Historic Wheat Prices: Real vs. Nominal

I was playing around with some wheat price data from the USDA NASS (found here, hat tip to Political Calculations) and wanted to share a couple of quick graphs.

First, here is a graph of wheat prices going back to 1866.  Anytime you can show 150 years of data in a chart, it's pretty cool.


However, if we put wheat prices into "real" terms, the chart changes dramatically.  Rather than a run-up in prices since ~1950, we actually see the "real" inflation adjusted value of a bushel of wheat declining from 1950 to a bottom in 2000.


I don't show this data to argue that wheat is historically cheap.  You can't make a judgement call on cheap or expensive without analyzing the numerous other factors influencing price including substitute products, production costs, or yields.  Rather, I just find it a fascinating truly long-term series of data.

A couple of quick observations:

  • The World War I price spike stands out as the pinnacle of wheat prices, peaking at over $42/bu. (in 2015 dollars) in 1917.  Interestingly, for many farmers in the northern great plains, the fallout from this (along with poor weather patterns / yields) in the 1918-1928 time frame made the "roaring 20s" a worse economic period than the Great Depression.
  • While World War II drove a second major run-up in wheat prices, it was nowhere near the levels of WWI.
  • The Great Grain Robbery of 1972 (when the USSR bought a large quantity of U.S. wheat at subsidized prices) also stands out.  This and a good overall history of the largest grain merchants is well covered and worth reading about in the book Merchants of Grain.
Where do wheat prices go from here?  I can honestly say I have no idea.  One quote, however, has always stuck with me, and that is "wheat is a weed."  Many of the old farmers say this to indicate that wheat is easily grown anywhere (prompting the joke "I can grow in on my land, so it must be a weed") and if a substitute commodity can be grown, it probably will be.



Harvest Investor © 2016. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Friday, May 6, 2016

The Longest Dividend Streaks in the S&P 500

Out of curiosity, I recently spent 10 minutes seeing which stocks in the S&P 500 had the longest streak of consecutive dividend increases. I ran my list on the S&P 500 Dividend Aristocrats since that immediately culled my screen to those companies that have increased for at least 20 consecutive years.

I had no real reason beyond curiosity for running this analysis. Many of these companies have great “moats,” but only a handful will appeal to the “compounding aficionados” (or is it the “compounders mafia”) since the majority have limited reinvestment opportunities (hence the dividends). The opposite argument also crossed my mind - that the longer the dividend streak the greater the potential for a value-trap. You could argue it either way.

I present the following list without comment or judgement on valuation/attractiveness of any individual stock or the group as a whole. With that:


Note: All data taken from www.dividendinvestor.com and www.dividend.com. Unfortunately, even high-end data providers like Bloomberg only report individual stock data back 20 years, so, these online databases were key to compiling the data.


Harvest Investor © 2016. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advices, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.