The Haiku of Finance for 01/26/16

Eat bread in a tweet
Diet stock jumps on the news
Tasty fat profit

The Haiku of Finance for 08/25/15

Treat cow effluent
Question whether it scales up
Test with biggest cows

Financial Sarcasm Roundup for 02/02/15

Anyone who thinks I will ever run out of sarcasm needs to think hard.  I mean, like, really hard.  Sarcasm is like cosmic background radiation . . . it is always there.

Uber just can't catch a break, and doesn't deserve one.  Google is developing a competing app.  Drivers who thought they were contractors are suing Uber because they're being treated like employees but have to pay operating costs themselves.  Uber's bro-jock culture is about to render its competitive advantages inoperative.  Jerk bosses usually stick it to employees, but Uber's arrogance takes it to a new level.  Nobody remembers Webvan from the '90s, which is why today's startups are repeating its operational errors.

Whole Foods is no longer the darling of the grocery sector.  It has long catered to upscale eaters who have more money then brains.  Regular grocers have figured out how to stock quinoa and kale.  I know a lot of people in San Francisco who swear by Whole Foods' offerings and they're all idiots.  Salmon in a can from a discount grocer is the same fish as the fresh salmon at Whole Foods.  Rich shoppers are impoverishing themselves by opting for sixteen flavors of granola at Whole Foods.

McDonald's is having a tough time at the other end of the quality scale in food retailing.  Trying to be all things to all eaters puts it in competition with upscale brands whose regular customers have more buying power, and thus more options.  McDonald's should focus on being the low-price leader in lame food for poor people who have few options.  Human taste buds evolved to favor crispy, salty, sugary things that signaled a high fat content.  The golden arches needs to engineer those factors into cheap foodstuffs that poor people will find addictive.  Downscale brands thrive when developed economies hit the skids.  Put a McDonald's next to every dollar discount store for a countercyclical trend.

I did not watch the Super Bowl yesterday but I can't avoid the news feeds mentioning the halftime show.  Katy Perry's "left shark" was an unenthusiastic dancer.  Maybe he was sad after a bad experience taking Uber, a huge grocery bill at Whole Foods, or a soggy burger at McDonald's.  I do like watching Katy Perry shake her hindquarters.  She's welcome to come over to my place anytime provided she leaves her sharks somewhere else.

Full disclosure:  I have no positions in the stocks of the lame, stupid companies mentioned in this article.  

The Limerick of Finance for 11/27/14

Thanksgiving meal cost on a chart

Turkey is the costliest part

Pricing holiday plan

Compare fresh food to can

Save now for next year's shopping cart

Financial Disruption Opportunities In Meatonomics

The Commonwealth Club presented one of its awesome Climate One shows today on meat.  The author of Meatonomics and the head of the California Cattlemen's Association discussed the meat industry's effects on our climate.  The science behind the contribution of livestock to global warming has been contentious ever since the UN FAO's 2006 report "Livestock's Long Shadow."  The existence of a baseline of methane production from livestock is more important to the public than the amount of production.  This invites regulation, which in turn opens the possibility of entrepreneurial disruption.

The livestock industry has tried to criminalize whistleblowing exposures of its dirtier practices by lobbying for ag-gag laws.  When these laws succeed, our democracy is poorer for the lack of informed consent in what we consume.  The Pew Commission on Industrial Farm Animal Production notes that the concentration of food processing in the hands of a few large companies creates unique food supply stresses that are a departure from much of American history.  This evolution of the livestock industry invites entrepreneurial disruption from food producers who transparently display their livestock processing.

Organically raised meat is fashionable in places like the San Francisco Bay Area.  This says little about its advantages in profitability or even sustainability.  Like anything else dependent on cold chain logistics, the financial viability of organically raised meat may vary by geography and the cost of energy.  The American Grassfed Association won't want to hear the Meatonomics evidence that grassfed cattle contribute measurably more methane to the atmosphere than cattle that are corn-fed in commercial breeding programs.  This implies that innovations to capture methane and other greenhouse gases from cattle production, and convert them into energy that brings ranches close to net-zero energy use, will find a ready market in the organic sector.  The rural land experts at the American Society of Farm Managers and Rural Appraisers (ASFMRA) have a large body of knowledge for types of land suited for agricultural production.  Food entrepreneurs don't have to reinvent the wheel.  The USDA-funded Agricultural Marketing Resource Center describes grants and data available to agribusiness entrepreneurs.  Anyone going whole hog (pun intended) into organic production should do their market research first.

Sometimes Uncle Sam helps out agricultural innovation in small ways.  The USDA's NRCS maintains an Environmental Quality Incentives Program (EQIP) that provides grants for producers' conservation projects.  A truly free market approach would eliminate federal crop insurance, price support programs, and insurance for floodplain habitation.  Those reforms would be much more appropriate targets for the livestock industry's lobbying than more ag-gag laws.  One area that probably will not see reform is the existence of commodity checkoff programs that fund sector-wide promotions.  Entrepreneurial producers of sustainable foods may as well use checkoffs to their advantage while they exist.

Meatonomics may not succeed in convincing Americans to reduce meat consumption, but cattle ranchers are amenable to arguments for more sustainable production.  This allows room for ag-tech entrepreneurs.  Understanding where to begin means knowing USDA's AWIC farm animal standards.  Launching disruption means mastering USDA's AFSIC organic production practices.  It takes more than a fortnight to connect the market data from the Economic Research Service and the National Agricultural Statistics Service but farmers and the American Farm Bureau Federation do it all the time.  Food technology startups are the new darlings in the VC sector's eyes.  They can attract funding if they disrupt the unsustainable practices of industrial farm animal production.  

Profiting From Drought

The California drought is real.  The US Drought Monitor presently shows an alarming concentration of red in the Golden State.  The US cattle herd count is at its lowest since 1951 and drought-impacted ranchers will probably overwhelm the USDA Farm Service Agency with disaster requests under the Livestock Forage Disaster Program (LFP) and other forms of disaster assistance.  The US Drought Portal is going to stay busy for a while.  Exogenous shocks that make markets unstable provide opportunities for entrepreneurs to solve problems.  The shock from drought can force transformations in agribusiness.

The USDA Agricultural Research Service (ARS) operates an Office of Technology Transfer.  Entrepreneurs should start there and cherry-pick (pun intended) innovations from the USDA National Agricultural Library that apply directly to agriculture.  The USDA Agricultural Technology Innovation Partnership (ATIP) is an umbrella initiative to share the government's technical knowledge with multiple private sector partners.

Resources for tech startups in the food sector are rapidly proliferating.  Kitchen incubators are all over the place, like La Cocina in San Francisco.  I like niche incubators because their focus attracts industry-specific expertise.  Incubators serving the broader tech sector have become victims of their own success.  Attracting applicants from mobile, social media, and gaming means the most popular incubators have quickly lost focus.  Maintain the niche focus means food incubators have the luxury of dealing only with food technologies.

Large enterprises can also jump on the drought mitigation bandwagon.  California's drought may lead to significant shortages of popular fruits and vegetables, so agribusiness from the rest of the country now has the opportunity of a lifetime to capture market share.  Activists will have to rethink their opposition to genetically modified crops if drought resistant crops can prevent food shortages in North America.  Desalination is a long-term pipe dream (again, pun intended) for solving California's water problems but it will consume billions of dollars in capital.  Water utility stocks may finally get their time to shine.

None of these options will go anywhere without backing from investors.  The persistence of drought from climate change means a persistent need for market-based solutions.  Investors focusing in the water-energy-food security nexus will find tons of opportunities to make a buck.  They may also find a ton of risk if they focus exclusively on backwardation in the commodity futures markets.   Profiting from drought is a moral good if it drives capital into technological innovations that enhance human quality of life during resource scarcity.

The Haiku of Finance for 12/27/12

Hail future farmers
World diet will demand more
Millions to be made

The Haiku of Finance for 12/26/12

Phosphate and potash
Agribusiness needs inputs
Fertilizing crops

Stonegate Agricom (SNRCF) And Its Phosphate

Stonegate Agricom (SNRCF) is developing phosphate projects.  I need to figure out just what's going on here.  Morocco dominates the worldwide market for phosphate and can dictate prices across the entire production chain, so any production change from that country will impact the valuation of any phosphate producer in the world.  One thing limiting the ability of Morocco to hold prices down through overproduction is the rising demand for fertilizer worldwide.  Emerging market consumers want more meat in their diet and farmers need more fertilized cropland to meet that demand.  Phosphate concentrate is probably the better part of this business sector to operate because fertilizer producers want more of it.

The CEO has a background in mining engineering but hasn't worked in that field in several years.  Technology and processes do change.  The good news is that the general managers at each major project are qualified engineers with experience in phosphate and coal projects.  A coal background is useful because coal deposits have uniform geologies that resemble phosphate deposits.

The company's Paris Hills, Idaho project has road access to a Union Pacific rail line a few kilometers from the property.  Their Montaro project in Peru also appears to have ready access to a rail line.  Having logistics in place is always good news.  Both properties have NI 43-101 reports on their MII resources, but of course I need to evaluate 2P reserves to make an investment decision.  Phosphate producers should monitor a project's calcite, minor element ratio, and chlorides but those don't appear to be significant problems for Stonegate Agricom.

Two economic factors determine the viability of any resource extraction project in the world:  the spot price of the commodity in question, and the cash cost of extracting the resource.  The price of phosphate right now is about US$185/ton.  Expanding the date range on that Index Mundi chart to 30 years reveals that the worldwide long term average price of phosphate ranged from $31-45/ton until 2007, when it spiked to over $400 and then crashed to $90 in 2009.  I do not know what happened in that time frame to cause such a spike.  This is important to note, because if the new normal price floor for phosphate is now over $90/ton then previously unprofitable deposits outside Morocco will be economically viable.  The risk for any producer is the possibility that Morocco could flood the world phosphate market with production that drives the cost under $90/ton.

The Paris Hills 43-101 report estimates a cash cost of $73/ton, with an upfront capital cost of $149M.  That cash cost definitely makes the project viable at present market prices and it will probably remain viable over the entire life of the mine (unless of course Morocco pulls the rug out from under the world price).  Funding the capex is a different story.  Stonegate Agricom's most recent quarterly financial statement on SEDAR is dated September 30, 2012.  They had C$7.3M cash on hand on that date; averaging their three-month and nine-month net losses gives them a monthly burn rate of about C$700k.  They can survive until late July 2013.  Raising capital may not be a problem for them if they continue to secure loan facilities from Sprott Resource Corp. as they did on August 21, 2012.

A lot of junior explorers and producers want to hit it big in phosphate and potassium/potash plays.  These companies are a lot riskier than the big producers like PotashCorp that dominate this sector.  Meanwhile, Stonegate Agricom will probably keep chugging along in pursuit of capex funding for Paris Hills.

Full disclosure:  No position in SNRCF or other companies mentioned at this time.

Alpha-D Update for May 2012

Here it is again.  My options from last month all expired unexercised.  It's always nice to hang onto cash earned from conservative hedges.  I have renewed my covered calls on FXI and GDX to expire next month.  I also renewed a short cash-covered put position under GDX, which I am increasingly likely to do as the price of GDX keeps dropping.  I realize I'm risking having more shares of GDX put to me but I don't mind doing so if they're getting cheaper.  A bigger pile of a hard asset ETF is one thing I wouldn't mind holding as the U.S. approaches hyperinflation.

I mentioned recently that I'm strongly interested in adding natural resource MLPs to my portfolio as a hard asset hedge against future hyperinflation.  I still plan to do so at some point but I'm much more skeptical now that using ETFs of MLPs is a viable way for me to do so.  Those ETFs have some odd ways of recalculating their daily NAVs that have the same effect as using leverage.  I hate leveraged ETFs and want to stay as far away from them as possible.  I may just go for a few reasonably priced MLPs and their associated operating companies (i.e., pipelines).

I'm also still looking for long positions in currencies of countries with low debt/GDP ratios and high transparency.  If I can't find correspondent banks in countries such as Australia, New Zealand, and Canada then I will need to look at currency ETFs.

I also wonder whether an agribusiness stock will perform adequately as a hard asset hedge.  People still need to eat even if the domestic currency they use to buy groceries is depreciating.  Maybe owning a farm or  even a backyard greenhouse is a substitute for such a stock; the big difference is that I would literally eat the yield.

My remaining California muni bonds mature in about a month.  I will not replace them with any fixed income instruments at all, although I would consider the sovereign debt of the three countries I mentioned above if those bonds were available to U.S. investors in their pure individual forms.  I am still not sure whether an ETF of TIPS will keep up with a hyperinflating U.S. dollar until I finish analyzing the fine print.  I do give myself a lot of homework but it's worth my time if it protects my net worth from chaos in the U.S. economy.

Nota bene:  I am not a financial adviser, planner, or counselor.  Please bear in mind that the above discussion is not any kind of financial advice for investors.  Like I've said in my legal disclaimers, nothing I say in any of my materials constitutes investing advice.  I do not tell other people what to do with their own money.  Enjoy my discussions as a form of entertainment.  

Stevia First (STVF) Needs To Make Money First

The Chuck Hughes Microcap Report sent me a teaser for Stevia First (STVF).  The name rang a bell, so I checked my archives to see if I'd blogged about this one before.  It turns out that I had written about a similarly-named company back in December 2011.  I don't repeat myself but sometimes I rhyme.  This one's different, but with similar enough prospects.

Stevia First started as something called Legend Mining.  The very last thing Legend Mining did before changing its name to Stevia First was lease an office from their CEO's wife, according to their Oct. 11, 2011 8-K.  I shouldn't have to tell you that they achieved zero success as a mining company, but their 2011 annual report tells you so anyway.  They're not achieving any success selling stevia sweetener either; they've had no revenue since changing their corporate mission, they've depleted their cash, and they've increased their liabilities.

The management team of Stevia First looks kind of familiar.  They are the living connections between OncoSec Medical (which I analyzed last month), Inovio Pharmaceuticals, and Stevia First.  None of these firms are making any money.  I would like to hear this crew explain how they will succeed across the entire spectrum of their endeavors.  I won't hold my breath.

Interestingly enough, Chuck Hughes also pumps the similarly-named stock I checked out last December.  He can have it, along with all the stevia he can swallow.

Full disclosure:  No positions at all in STVF or any other companies mentioned, thankfully.