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Food crisis: Fields of gold

August 13, 2009 -Toronto -Reports of an end to the recession and USDA estimates of a record soybean and near-record corn crops, and Bay Street is still talking of being "on the edge" of a global food shortage: is it hype or is it helpful? And who will benefit: the haves or have nots?


August 13, 2009
By Canadian Business Magazine

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August 13, 2009

Jeff Sanford

A bumper crop of corn set to come in at harvest in the U.S. this year. A global recession hogging all the attention. That’s all it took, and all of a sudden the Global Food Crisis, such a topic of conversation last year, is nowhere to be seen.

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The quick disappearing act has some wondering where good sense has gone. “One good year and the problem is over? That’s ridiculous,” says Donald Coxe, a well-known commodity fund manager. His latest work of art, the Coxe Commodity Strategy Fund (TSX: COX.UN), was the biggest IPO on the TSX last year (raising $297 million from investors). So you know where his interests lie. Nevertheless, he is concerned that we are still just one bad crop away from another round of volatile food prices. “We’ve just had the worst deflation in the postwar period, and yet the prices of food are still high,” says Coxe. “We’re still right on the edge.”


The edge he’s referring to is the amount of grain that has been carried over from the harvests of previous years. In eight out of the past nine years, the world has consumed more grain than has been produced. The net consumption has come out of existing stocks, and those stocks have been dangerously drawn down, which means we’re still flirting with a global food crisis.


The leaders who recently gathered in L’Aquila Italy for the G8 summit acknowledged this. Amid talk of food security and “farmland grabbing” (a new global scourge that sees rich countries like Saudi Arabia buying up farms in Africa to produce grain for the homeland), the leaders also released a statement that suggested that “while the prices of food commodities have decreased since their peak of 2008, they remain high in historical terms and volatile.”


But even as the world food crisis has faded from headlines, Bay Street is ramping up its reaction to the world grain shortage. Over the past few years, a couple of farmland-focused investment firms, including Agcapita Partners LP and Assiniboia Capital Corp., have been buying up western farmland. The goal: to package those holdings into securities that can be bought by retail investors as a way to hedge their investments against food, fuel and monetary inflation.

Long-term growth in spite of short-term effects of recession