Market Commentary for the week of January 22, 2007

Everyone talks about the weather, no one does anything about it. No one can do anything about it. But beyond the centerpiece of dinnertime discussion, the weather is having profound influences on the pocketbooks of global investors.

Regular readers of my column know that I have targeted agriculture and food-related equities as the next leg in a commodities-driven capital gains explosion in the world financial markets. After spectacular gains in metals, mining, timber and energy during the last decade, my attention now focuses on the next inflation-led and price sensitive tangible asset.

Indeed, recent warm weather in the northeast and frigid cold in the Plains and West, have turned the economy upside down. Retailers couldn’t sell winter wear in New York, while California juice harvests have come up fallow. Anecdotal statistics indicate that almost 70 percent of current orange juice crops have been ruined due to below freezing temperatures in the United States’ west coast.

In the meantime, the price of oil (declining) has Wall Street ebullient, thinking that we have broken the price-hike spiral and turned a corner on inflation and price pressures that had driven the energy sector during the last year.

Not so fast.

Milder temperatures throughout the globe have simply enabled the stockpiling of traditional Winter supply which, in turn, has created an oversupply in the general market. As a result, prices for a barrel of oil have declined by almost 20 percent since last August.

But don’t be fooled by the supply chain. Weather-induced statistics are anomalies to the broader secular trend. Industrialization in China, global and regional unrest, an insatiable appetite for fossil fuels, and a lack of political leadership in developing alternative energy supply sources are imbedding a permanence in the price gouging and inflation sensitive nature of capital gains in that sector.

One would rather see a change in the kind of economic stimulus and activity which fosters an energy exorbitant lifestyle, than to ignore the exogenous influences of El Nino and its impact upon fuel supplies and prices.

The correction in the Energy group is a transient event.

In like manner, the effects of the weather upon agriculture are finite influences within a much broader secular phenomenon. Whereas oil is the fuel of industrial development, food is the fuel of industrialized civilization. Advances in chemistry, hydroponics, and soil management have added significant knowledge and profit potential to the sector, but global demand is outracing the supply chain. No citizen of this planet should be hungry. The responsibility of government is to ensure that its constituents are fed and clothed. I fear that beyond my acumen about Wall Street, Main Street is not always fulfilling its responsibilities. Therefore, as a data analyst, my attention is always directed towards trends and opportunity.

I am tracking profit potential in juices, grains, soybeans, wheat, meat, legumes, and fertilizers during the next year. Not a bad shopping list for Saturday’s trip to the market, either.