Waking up to agriculture

Although a city boy, my village roots helped me appreciate sugar cane farms, sunflower beds and wheat warehouses. As a child, you don't appreciate what you eat. It took me about two Juglar cycles of 10 years each to wake up and realise that agriculture was a powerful asset. We have been researching on it in this third Juglar cycle.

We have written quite a bit about cotton, sugar, wheat and potato over the years, not only because of their basic utility, but also because of the times we live in. Given the inflation ahead, society will treasure food and water more than gold, oil and stocks combined. New leaders would emerge from basic industries than from telecom, technology or banking.

So, how should you brace for this? Reduce portfolio risk by including components from the agriculture sector. However, we need to challenge a few misconceptions before we do this. "I know stocks, but what do I know about jeera (cumin, an Indian condiment)?", is one such.

Are we confusing comfort with knowledge? Or, are we mingling feelings for the product with commodity or predictive knowledge? The truth is: Cause and effect works in every market. Why else do you think chilli goes up or Suzlon still goes down?

So, if both agriculture and non-agriculture products, at the end of the day, have numerous factors affecting prices, why should I deal in the former? A few reasons. First, simplicity versus complexity: Agricultural assets are simpler than stocks. They are tangible, too.

There is a better product feel for agriculture. Second, heavily-traded markets on one side reduce the transaction cost and, on the other, bring in 'quants' and a lot of noise (a simple a-b-c can become a complex w-x-y-x-z). Third, adding agriculture to portfolio is diversification. This means reduced risk.

"Ok, I get it. But how do I compete with those who have studied agriculture all their life and understand its pulse?" We just talked about product feel. It's experience that takes time. Product feel is nothing but being at ease with the commodity. The moment you start devoting time, you can interpret the jargon, too.

Like, where are all sesame seeds used? Is it an inferior or superior product? What is driving the guar seed up? What type of Indian chili is traded? Is mustard oil more industrial than refined soya oil? What are yell peas? How much is local currency influencing the price? How does regular seasonality work?

We, too, are learning about agriculture, but while we gather experience, we shall use our Jiseki system to invest. Jiseki is a simple ranking system that identifies outliers in a group and plots performance cycles for respective assets. It also tells us what are worst and best. So, we invest in the worst and short (reduce or close) the best. At any point of time, we can know whether sugar out-performance is continuing or is it ready to reverse. We fine-tune our entries and exits with Jiseki. We have illustrated the Delhi sugar Jiseki here, and also disclosed the best and worst agricultural assets' ranking. Sugar is in counter-trend and should reverse in a few weeks. Coriander, palm oil and chilli are the worst, whereas turmeric, jeera and rapeseed are top-ranked.

The author is CMT and co-founder, Orpheus CAPITALS, a global alternative research firm