Where to Invest in 2013: What Jim Rogers is Most Optimistic About

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If you're looking for where to invest in 2013, know that the best investment opportunities often come from areas that are out of favor, giving them large potential upside.

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.

Where to Invest in Ag

These positive long-term fundamentals mean nothing to Wall Street's "how much can I make today?" mentality though. Agricultural commodities have been losers so far this year like other commodities.

The selloff began in earnest when the USDA reported it expected record plantings of grains this year in the U.S. Fears spread of a 'record' crop. Net long future positions in corn dropped to the lowest level since June 2012.

But investors should recall that a record crop in grains was forecast last spring too. But then Mother Nature intervened and the worst drought in half a century took place.

It looks as if, once again, Wall Street has forgotten that agricultural crops are affected by weather. Planting seeds does not guarantee a bountiful harvest.

Corn hit a one-month high last week as much wetter-than-expected weather hit parts of the Midwest that had already suffered through colder-than-expected weather. These events are especially crucial during the planting season. Delayed plantings mean delayed pollination among other issues.

Wall Street's short-sightedness opens opportunities for investors. While a severe drought is probably not in the cards in 2013, grain prices may have already factored in a 'perfect' crop and a record one at that.

A look at agricultural ETFs at these levels may be worthwhile. A couple of Jim Rogers-inspired exchange traded notes fit the bill the nicely. The two ETNs are the RBS Rogers Enhanced Agriculture ETN (NYSEArca: RGRA) and the ELEMENTS Rogers International Commodity Agriculture ETN (NYSE Arca: RJA).

Bottom line: When looking for where to invest in 2013, the fundamentals dictate that, as Jim Rogers points out, you can't ignore agriculture. For more on where Rogers is investing in 2013, check out this exclusive Money Morning interview.

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