HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hey everybody, welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. Today my guest is Shonda Warner, with Chess Ag Full Harvest Partners, making a return appearance here on this show. Nice to have you back.

Shonda Warner, managing director, Chess Ag Full Harvest Partners (Warner): Thank you for having me.

Norman: So let's get right into your overview about the ag markets right now. We had a conversation at the Index Universe conference that was held back in December, and I think you were a little bit bearish on at least some of the grain markets.

Warner: Yes. I think more so; I'm mixed right now.

Norman: Mixed?

Warner: Yes. The bearish side of that is that I think, by the end of 2012, there'll be lots of grain in the world if we don't have any major drought or sort of weather issues happen. There's going to be a lot of corn. We have plenty of supply, let's say.

Norman: OK.

Warner: If I were pushed to place chips someplace, I guess it would be still bullish dollar. The dollar is the best of a bad basket of currencies or countries that have problems. So I think we could continue to see the dollar rally in 2012.

Norman: So would that translate into …

Warner: That would translate into negative grain prices.

Norman: And negative commodity prices in general.

Warner: Yes. I think people who are insiders in this area, of course, live and breathe with the notion of the correlation with the dollar and hard assets. But maybe people new to the sector, who haven't invested in this area before, aren't so knowledgeable about that correlation. So I keep warning people; I keep talking about that.

Now, if the dollar rallies, and everything else is equal, we're going to sell off here. So that's sort of a bit concerning right now. I think overall, everybody is going to have to inflate. And how they do that is going to be the trillion/gazillion-dollar question.

Norman: Well, they're certainly not doing it through fiscal policy, which is austerity everywhere, right?

Warner: Right.

Norman: And the monetary policy side — QE1, QE2, QE3 — hasn't equated into any broad inflation at all. If anything, you can make an argument that it's deflationary. It removes a lot of interest income out of the economy.

Warner: I think that that's true, on one hand. And yet, on the other hand, just to have that discussion, I'm on my way back to Mississippi from 10 days in Europe. And everywhere I go, prices are higher for things that I want. A subway ticket in London is now 4 pounds for a single journey in the center of London. And just a couple of years ago, it was 2 pounds-20.

So I think we have this secret stealth-inflation thing going on as well in many, many places. Property prices have increased another 15 or 20 percent in the center of London, and yet there's sales in every store — 70 percent off. What's going on here?

Norman: Right. And you have wages going down.

Warner: Yes.

Norman: And property prices, at least here in the United States, still falling.

Warner: Still falling. And so, I think it's true that this money is sort of being sucked up away from the middle class, and certainly away from the poor, into the banking industry, just to save the banks or whatever. And the people are sort of aware of this, are afraid. And so, in London, my sense was that people were putting cash anywhere they could in hard physical assets. Now, that's sort of the other side of my little bearish thesis for grains, let's say, or farmland, for that matter, and we can get into the farmland side of that. That's the ultimate value play. If grains go up, land eventually follows.