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report
14th August 2009
“Bread and circuses” – buying exposureto Food/Agriculture
The phrase “bread and circuses” was penned by the Romansatirical poet, Juvenal, nearly two thousand years ago. In Satire10, he wrote: “Already long ago, from when we sold our vote to no man, thePeople have abdicated our duties; for the People, who once upon
a time handed out military command, high civil ofce, legions -
everything, now restrains itself and anxiously hopes for just twothings:
bread and circuses
.” The modern day versions of “circuses” are professional sportsand their epitome, at least in Britain, is Premier League soccer.
The new season begins tomorrow. But we are even “luckier” -
since the economic crisis really hit, with the collapse of Lehmanlast September, the price of wheat has plunged:
Wheat price (Chicago) - 1-year
Source: timingcharts.com
Unfortunately, this is unlikely to be sustained, but therein liesopportunity.My favoured asset classes in my “global end of normal” thesisare gold/silver, network technology stocks, energy and food/
agriculture. The long-term bull argument in food/agriculture is
Contact/additions to distribution:
Paul Mylchreestpaul@thunderroadreport.com
This issue:
“Bread and circuses” - buyingexposure to Food/AgricultureUS Treasury bonds - emergingPonzi scheme (here)
 
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© Thunder Road Report - 14 August 2009
obvious – rising population (about 230,000 per day globally), rising incomes in the emerging world,
constraint on arable land and increasingly volatile climactic conditions.The next chart shows how the percentage of disposable income spent on food in the US (in total and for
food consumed at home) has fallen sharply. Total expenditure on food has fallen from c.25% in the 1930sand late-1940s to 9.6% of disposable income in 2008. Food consumed at home has fallen from c.20%down to 5.6% last year. It looks to me like these ratios are levelling out and my guess is that they aregoing to start to increasing. Remember, when nancial sector stocks accounted for about 40% of total S&Pearnings in early 2007? That wasn’t sustainable and I doubt that Americans spending only about 5% of 
their disposable income on food consumed at home is either.
Percentage of disposable income spent on food in the US: 1929-2008
Source: USDA
Bill Doyle, President and CEO of fertiliser producer, Potash Corp. of Sasketchewan, was talking up the bull
case in a conference call following its Q209 results on 23 July 2009:
 “The pressure on the food supply is just enormous…you are going to see these same headlines on food
crisis appear once again. My guess is a year from now we’ll be back in the food crisis, where people aresaying jeez, what happened this thing came back at us again. We thought it was over, well isn’t over with
it is never been over with. And you are just going to have a lot of pressure on food supply, which means
you’re going to have higher prices. You are going to have higher prices across the Ag commodity spectrumthe process, (which is) going to use more fertilizer. So, this is a long term story.” He would say that wouldn’t he, but I agree with him. Until now, I’ve had no exposure to food/agriculturebut I’ve bought what is a medium-sized position for me using the remaining cash in my portfolio, switching
out of a bit of technology exposure and one of my junior gold explorers.
With food/agriculture, there are different ways of gaining exposure. Fertiliser and crop protection(agrochemical) companies are obvious ways via the stock market. However, rightly or wrongly, I’mconcerned about the sustainability of the current stock market rally, so I’m opting for more direct exposureto agricultural commodity prices via an ETF (exchange traded fund).The hard part is getting the timing right on the individual commodities so I’ve opted for some diversication.I’ve bought the Power Shares DB Agriculture Fund (ticker: DBA) which gives exposure to wheat, corn,soybeans and sugar (rebalanced to 25% each every November). The two-year performance chart is shownbelow. The recovery from the December low is c. 20%, i.e. much less than the recovery in the stock market
from its low back in March
0.05.010.015.020.025.030.0
1   9  2   9  1   9   3   3  1   9   3  7  1   9  4  1  1   9  4   5  1   9  4   9  1   9   5   3  1   9   5  7  1   9   6  1  1   9   6   5  1   9   6   9  1   9  7   3  1   9  7  7  1   9   8  1  1   9   8   5  1   9   8   9  1   9   9   3  1   9   9  7  2   0   0  1  2   0   0   5  
Total At Home
 
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© Thunder Road Report - 14 August 2009
Power Shares DB Agriculture Fund
 
Source: yahoonance.com
I like the fact that DBA’s current exposures are:
 
B
Sugar 36%: currently in a powerful bull market;
B
Soybeans 26%: showing some positive signs
 
B
Wheat 20%: close to bottoming?
 
B
Corn 18%: close to bottoming?I’m hoping is that the bull market in sugar continues to drive DBA higher between now and November whenthe rebalancing takes place. After that, soybeans, wheat and corn should take up the baton. Well that’s the
plan!
The surge in the sugar price due to lower production in Brazil (world’s largest sugar cane producer), dueto too much rain, and India (world’s largest consumer), due to a drought, has been well documented. Withonly another month to go in the Indian monsoon season, rainfall has been 29% below average so far. The
problems with sugar supply on a worldwide basis remain acute. Here is a Reuters report from earlier thisweek:
 “Some of America’s biggest food companies say the U.S. could “virtually run out of sugar” if the Obamaadministration doesn’t ease import restrictions amid soaring prices for the key commodity. In a letterto Agriculture Secretary Thomas Vilsack, the big brands - including Kraft Foods Inc., General Mills Inc.,Hershey Co. and Mars Inc. - bluntly raised the prospect of a severe shortage of sugar used in chocolate
bars, breakfast cereal, cookies, chewing gum and thousands of other products. The companies threatened
to jack up consumer prices and lay off workers if the Agriculture Department doesn’t allow them to importmore tariff-free sugar.” 
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