Lula Won The Election: Bullish Verde Agritech

Lula is going to reform agriculture.

I believe this is bullish Verde Agritech:

• Interest reductions for farmers using biofertilizers 
• Convert degraded pastures into farmland 
• Lower diesel prices
• Ban Amazon potash
• Higher food prices

Russia Potash Production is Cratering

Where will Brazil's farmers get their potash now? Hint: Verde Agritech.

Russia Potash Production Plunges

Russia's potash production has cratered. 

 

This has now channeled through to lower exports to Brazil from Russia.

Brazil is the best country for agriculture

Brazil is the fastest growing country for agriculture. 

Brazil Potash Supply and Demand

Brazil potash demand is rising even while supply has diminished. This is extremely bullish for the potash price.

 

Moreover, supply disruptions aren't as severe as thought. Belarus supply has been disrupted in half, but Russian supply has not changed. Israel has replaced Belarusian supply.

This means that the rise in potash price isn't fully attributable to the lack of supply, but needs to be found in the rising food price.

Brazil Potash Imports Rising

Potash is in high demand in Brazil.

USA Vs Brazil Soybean Production

Fertilizer prices have gone up for both USA and Brazil, which could have a detrimental effect on soybean crop yields. But which country will suffer the most?

Soybean prices are generally the same for both countries. Shipping costs are slightly lower for Brazil.

However, the cost of production is significantly lower in Brazil due to low overhead costs like property taxes. Even for the direct costs, which include fertilizer and seeds, the costs between the two countries are comparable.

This is why Brazil will stay very competitive compared to USA. Brazilian soybean exports are rising.

Brazil Potash Premium

Brazil potash pricing is much higher than Canada and U.S.

 

U.S. China Trade Deal is a Scam

How do you force China to buy soybeans from the U.S., while it's much cheaper to buy from Brazil due to the U.S. tariffs?

Even if China were to execute the trade deal, this would be highly inflationary for the U.S. consumer.

Stock Screener: Take Five: Brazil (EWZ)

Remember my post on KYN, SIMO, TAICY and TYG? All have been doing well. TYG has given a handsome dividend while holding steady while the U.S. dollar was appreciating 20% against other currencies.

Track record 4-0.Time to move on.

If I don't have any ideas anymore what to buy, I use the stock screener.

What you want to do is filter on 4 attributes: market cap, P/E, dividend yield and percentage change.

1) Market Cap: do not choose small companies as they are mostly fraudulent or don't have sustainable earnings. Don't choose big companies because these are not volatile enough to get fast profits from. I'd filter between 200 million and 4 billion.

2) P/E ratio: choose the companies with the lowest P/E ratio, these companies are dirt cheap while still having earnings. Cheap is below P/E of 5. But do not choose below P/E of 2 because those are mostly companies that are going bankrupt or have bad growth.

3) Dividend yield: always choose companies that have dividends, because these companies have real earnings and can prove they have sustainable earnings to reward investors. The higher the better of course, but don't push it above 7% as those companies probably don't have the money to pay out dividends on a regular basis. I'd go for companies with dividends between 3% and 7%.

4) Volatility: don't choose companies that are so volatile. Maximum year over year change should be between the 20% range.


We use the exact same parameters as above and our next winner is: Brazil!

When we just look at how undervalued emerging markets are today compared to the U.S., we can't ignore this. Look at the P/E ratio of emerging markets (11.4) Vs. the U.S. (16.9).

As for the CAPE Shiller P/E ratio, Brazil is below 10 while the U.S is above 25.

Brazil was not a favorite of investors due to the elections, the tax increases, corruption, declining Brazilian currency and also due to declining oil and commodity prices. Petrobras is the largest oil company in Brazil and has seen a massive decline. But now, the valuations are very good. We have much higher dividend yields than the U.S., lower P/E ratios, lower P/S ratios, lower price to book values etc... If you think the oil and commodity price has bottomed out, Brazil is a good bet. And I'm willing to bet on it for my next stock screener pick no. 5.

Currency Devaluation in Emerging Markets

The interesting news these days is all about currency devaluation in the emerging markets. Due to the tapering of the Federal Reserve, we now have an unintended consequence. All of the cheap money supplied by the Federal Reserve, that went to the emerging markets, is now coming home. Some of the emerging market countries are already feeling this pressure of currency outflows. As a result they are raising interest rates at a very fast pace which collapses their economies. Although emerging market equities have better valuations than developed market equities, we still see a monthly outflow of $12 billion out of emerging market funds. All of this money is now flowing back into U.S. bonds and more recently into precious metals.

To read my analysis, go here.

For more info you can watch this interview with Gerald Celente.

Brazil Doubles Gold Holdings in Two Months

Precious metals have been weak for the year of 2012 and investor sentiment is nearing an all time bottom, but I believe we haven't reached bubble territory yet.

When roaming the precious metals forums, I found out that Brazil doubled its gold holdings in two months time (added 17.2 tonnes in October 2012 and 14.7 tonnes in November 2012. Total holdings now 67.2 tonnes), I just wanted to see if central bank gold buying correlated with the gold price.

And surprisingly, there is a correlation (Charts 1 and 2)! If you look very carefully, you will see that the price of gold goes up when central banks buy gold. For example from 1970 till 1976 we see a net positive buying of gold by central banks. That period was also bullish for the gold price. The same can be said for 1980. Then came a period where central banks slowly got rid of their gold from 1980 till 2002 and that's a period where gold declined in price. And from 2003 onwards, central banks have slowly shifted from net sellers to net buyers again today.

Keep reading about this analysis here.

Adecoagro (AGRO): Agriculture in South America

At the beginning of 2012 agriculture prices are starting to turn around after the big correction that occured in 2011 (Chart 1). Speculators have started to add net long positions in agriculture due to drought concerns in South America.

Chart 1: Rogers Agriculture ETN (RJA)

A great play on agriculture is Adecoagro (AGRO), to find out, go to: Seekingalpha