How to Profit from the Global Food Shortage

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

We stopped out of North American Palladium Ltd. (PAL) this morning for a gain of 1.59%. We closed out the options earlier this month for an average gain of 110%.

That said, with most global stock markets down today, we may be in for a bumpy ride over the next week or so. That makes this a tricky time to be placing bets in the stock market.

So rather than recommend a specific stock, this week’s Global Bull Market Alert pick — the ELEMENTS Rogers Intl Commodity Agri ETN (RJA) — offers a way to profit from the accelerating trend of rising global food prices. With RJA invested in a wide range of soft commodities — including wheat, corn, cotton, soybeans and coffee — this is a terrific way to make money from agricultural inflation or “agflation.”

Although RJA already has had a strong run, here’s why I think it will continue to do well.

First, agricultural prices are soaring. In Chicago, soft wheat prices recently rose to a fresh 29-month high. In Paris, European milling wheat has risen to its highest level since March 2008. Last week, sugar prices approached a fresh 30-year high. Inflation is so out of control in Shanghai that store clerks aren’t even bothering to print new price labels for noodles as prices rise.

Second, governments around the world — especially in Northern Africa and the Middle East — are stockpiling food staples in an attempt to contain panic buying and social unrest. In Algeria earlier this month, young rioters chanted “Bring us sugar!” even as the country’s government bought 800,000 tons of wheat in an attempt to contain future unrest. Saudi Arabia also announced that it plans to double the size of its wheat stocks to cover a year’s demand. Bangladesh and Indonesia joined the rush by placing extraordinary orders for rice. Nor is the food crisis just an “emerging markets” issue. Portugal experienced a brief sugar shortage in December, leaving supermarket shelves bare and compelling the country’s agriculture minister to appeal for calm.

Not surprisingly, speculators are piling into agricultural commodities. Official data confirm that hedge funds and big pension funds have amassed one of the biggest bullish positions in wheat in nearly three years.

So buy the ELEMENTS Rogers Intl Commodity Agri ETN (RJA) at market today and place your stop at $10.00. If you want to play the options, I recommend the June $11.00 call options (RJA110618C00011000). Be warned, though. These options are quite illiquid and the “bid”/”ask” spreads can be very wide.

This is a position I already hold for my clients at my investment firm, Global Guru Capital.

Portfolio Update

Alliance Resource Partners LP (ARPL) is up almost 4% in trading so far today. We already are profitable on paper in this position and today’s rise is an encouraging indicator for this stock’s prospects. ARPL remains a BUY.

China MediaExpress Holdings (CCME) broke out sharply to the upside last Thursday, when it jumped a whopping 16.62% on some serious short covering. You took advantage of this pop to book 33.33% profits in your March $20 call options, right before the stock corrected 8%. With the fundamentals of the company intact, and serious pressure on investors to cover their short positions, this stock has nowhere to go but up. CCME is a BUY.

Cognizant Technology Group (CTSH) dropped 1.94% this past week. With the stock looking to find support on its 50-day moving average, I temporarily am moving CTSH to a HOLD.

Bank of Ireland (IRE) dropped 12% this past week. This is a volatile stock that will test your mettle. But much as investors in Citigroup in the United States found, you will be rewarded for patience. That said, with the stock back under its 50-day moving average, I am moving IRE to a temporary HOLD.

Ivanhoe Mines (IVN) rose 6.74% this past week. IVN traded near $29 on Wednesday, just shy of its closing high of $29.20 set in early December. Ivanhoe estimates that it will receive gross proceeds of approximately US$1.18 billion from its recent rights offering to help finance construction of the Oyu Tolgoi copper-gold project in Mongolia. IVN is a cautious BUY.

Melco Crown Entertainment Limited (MPEL) ended the week 2.75% higher. Melco was awarded “Best Casino Operator” for the Asia Pacific region at the International Gaming Awards 2011 for the third consecutive year. City of Dreams, in Cotai, Macau, was awarded “Best Casino Interior Design” and “Best Casino VIP Room” at the Gaming Awards. This play on Asia’s Las Vegas remains a BUY.

National Bank of Greece SA (NBG) was my special “Are You Crazy?” pick that I issued after my teleconference last Tuesday evening. As with Ireland, I believe that the European Union will fight tooth and nail to keep the leading financial institutions of the peripheral E.U. countries intact — much as the U.S. government did with Citibank. With NBG trading above its 50-day moving average, it remains a BUY.

Sina Corporation (SINA) bucked the trend and rose 2.44% this past week. I am waiting until the stock gets more oversold before I recommend new options on this stock. Otherwise, “China’s Twitter” remains a BUY.

Spreadtrum Communications, Inc. (SPRD) ended the week 9.73% higher, firmly bucking the negative trend in global markets. You also booked 67.35% gains on your May $17.50 call options on Friday. This bet on Chinese technology remains a BUY.

Silvercorp Metals Inc. (SVM) jumped 6.57% this past week, regaining its footing. Silver prices have slumped in recent weeks. But an improving economy will lead to greater industrial demand for silver. That said, with the stock remaining firmly below its 50-day moving average, SVM remains a HOLD.

Transocean Inc. (RIG) rose slightly this past week. With the stock being increasingly backed by institutional buyers, RIG remains a BUY.

P.S. I will be having a special private meeting for my subscribers during the World MoneyShow in Orlando, Fla., on Friday, Feb. 11, at 11 a.m., in the Destin Room of the Gaylord Palms Hotel. If you want to attend my private meeting, please sign up by clicking here. Space is limited. To register for the MoneyShow, Feb. 9-12, call 800/970-4355 or click on this link to The World MoneyShow Orlando. Be sure to mention priority code 020758 to register for the show. I look forward to seeing you there.

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China MediaExpress Holdings, Inc. (CCME) had a huge day yesterday -- soaring 16.5%, thanks to a monstrous "short squeeze." That means that investors who have been betting on the stock's decline by selling the stock are throwing in the towel and are buying it back at a furious rate. The stock is now up 28.58% since you first bought it.

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