HardAssetsInvestor

Written by Lara Crigger  |

November 11, 2009

Shonda Warner: Mother Nature, Not Speculators, Changes The Ag Game

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Where do ags go next? The founder of Chess Ag Full Harvest Partners shares her views.

• Where she’s looking for farmland now
• Ethanol's ‘white elephant in the room’
• Which technology could change the ag markets forever

So far in 2009, the agriculture markets haven't witnessed the same sharp rebound as other commodities have; in fact, compared to oil or copper, humble ags seem downright sensible. And there's still plenty of room for upside, says Shonda Warner, founder of Chess Capital Partners—that is, if Mother Nature plays along.

Ms. Warner is the founder of Chess Ag Full Harvest Partners, an investment firm that focuses on purchasing undervalued farmland in the U.S. With over 20 years' experience in hedge fund environments, she has worked as co-managing director of U.K. based fund-of-funds Montier Partners and as an executive director for Bear Stearns and Goldman Sachs.

HAI Associate Editor Lara Crigger caught up with Ms. Warner at last week's "Inside Commodities" conference to discuss the coming global agriculture boom, including where she's looking for farmland now, how ethanol will influence futures prices, and which technologies could change the ag markets forever.

Lara Crigger, associate editor, HardAssetsInvestor.com (Crigger): What's your outlook for agricultural commodities for 2010?

Shonda Warner, founder, Chess Capital Partners (Warner): I think that's kind of a difficult question, because it really depends on what's going to happen with the rest of the world. And if you look at pure fundamentals for 2010, it's all going to come down to weather. If weather in South America is good, you could see beans come off a little bit; maybe we might not have so much of a volatile year. And the same would hold true when we get into spring planting season in 2010 in the U.S. for corn.

So if we don't have a financial meltdown—and some people are definitely calling for it—the risk is weather related. I know several academic meteorologists who keep "doubling down." Actually, this year, they're "tripling down," saying that we haven't had a drought in the Midwest in 15 years, while the average is every 11 years, so we're way, way, way overdue for one.

But who the heck knows? I think if the world's financial markets are stable, that's going to be the most important contributing factor to what agricultural commodity prices do.

Crigger: Of course, several people at this very conference have predicted we're heading for worse economic times ahead, including Nouriel Roubini and Peter Schiff.

Warner: Medium to long term, I think there's no way out of our nasty fiscal mess that we've gotten ourselves into, other than inflation. Although, I do think it's not going to happen tomorrow—I think we're in for more of a deflation over the next 12-24 months.

Right now, global macroeconomics is playing a much greater role in agricultural commodity pricing than they typically do. So I'm concerned that we're even seeing some speculation in these agricultural commodities. If we see a general selling off of the market and a widening of credit spreads, you could see ag prices come off somewhat.

Personally, I think that would be a fantastic buying opportunity—I'm kind of hoping that happens, because I'll be there with my dump truck scooping it all up. Corn at $2.75 sounds like a very good buy to me; if we should dip down there, I think that's a very exciting opportunity. So that's my short-term outlook.

Crigger: So then what makes a bigger difference in the agriculture markets: Mother Nature or speculators?

Warner: Mother Nature. I think there can be speculative froth in the markets, but Mother Nature can really change the game fast and seriously. A speculator can't cut the U.S. production by 25-30 percent. Weather is a much bigger force than even your top 10 hedge funds putting 5 percent of their asset allocation into agricultural commodities.