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That is what successful contrarian investors such as Jim Rogers and others do. They look for investments where people are rushing out of the 'doors' – creating bargain prices, as opposed to investments where people are clamoring to get into – creating rich valuations.
So far in 2013, one sector where investors have been rushing out of is the entire commodity space. This has created opportunities for sharp-eyed investors.
Where to Invest in 2013: Jim Rogers on Agriculture
In a recent exclusive interview with Money Morning, Jim Rogers gave us the scoop on his latest interests in agriculture.
Rogers pointed to several factors he believes will push agricultural commodities prices much higher in the years ahead.
One factor is demographics. Farmers across the world are aging and it's not a sector attracting a lot of young career-hunters.
Another key reason for higher prices: demand is outpacing supply.
"With agriculture, you know, we've consumed more than we've produced for the last 10 years or so," Rogers explained. "So, inventories are near historic lows, which means that – if something goes wrong – we're going to have serious problems. And even if something goes right, you've got to replenish the inventories."
This means another year of drought would be very worrisome and prices would soar. Even a good crop year only means that the world gets to restock some of its depleted grain inventories.
That is why Rogers told Money Morning that "the price of agriculture has to go up a lot, or we're not going to have any food at any price."
Fundamentals Are in Place
Jim Rogers has the fundamental picture right with regard to grains, for example.
Demand for food commodities is what the economists call 'inelastic.' In layman's terms, it means that even if the economy is in bad shape people still need to eat. And with an expanding global population, demand for grain will only continue to increase in both good crop years and bad ones.
Some interesting facts were put together regarding demographics and grain demand by the provider of Teucrium exchange traded funds. It offers investors ETFs that own futures contracts on corn, wheat and soybeans.
Demographics and Grain Demand:
- Based upon the U.S. Department of Agriculture (USDA) estimates for the 2012-2013 crop year, current annual demand per person for grains is about 4.77 bushels of corn, 3.52 bushels of wheat and 1.36 bushels of soybeans. Multiply that by the world's population and you get a good picture of the importance of grains.
- Roughly 13.5 million additional acres need to be cultivated every year just to supply the global population growth for that year. That acreage would need to produce a combined 722 million bushels of corn, wheat and soybeans.
- At current demand levels and the current yield per acre, the world needs an additional 26 acres in arable land every minute just for the three grains alone. This is difficult since increasing population is decreasing the amount of arable land available for farming.