The S&A Digest: The Soybean Highway

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/24/2013

Porter's in Florida... Dyson's in Brazil... The other hedge against inflation... Is the commodities run over...?

Goldsmith comment: Porter's in Florida without Internet access. He'll be back on The Digest by Wednesday. I'm filling in today.

 As we've noted in The Digest, insurance is a great business to buy during inflationary periods. Insurance companies collect premiums in today's dollars, then pay out claims over time in devalued dollars. In a recent Barron's interview, David Winters, CEO of value mutual fund Wintergreen Advisers, said he likes buying companies that can easily raise prices during inflation. In particular, he likes cigarette companies. No matter the cost, smokers must have their nicotine fix. Winters is loading his portfolio with Japan Tobacco, the third-largest tobacco company in the world.

Last month, Dan Ferris showed Extreme Value readers a backdoor way to buy one of the country's best cigarette companies for a 25% discount. This play has virtually no analyst coverage and could mean big profits in the near future. For more on Extreme Value, click here...

 Signs of a top in steel prices? Last week, the world's largest iron ore producer, Vale, struck a deal to increase the price of its product - a key ingredient in steel - by 71%. Rising iron ore costs are leading steel makers to raise their prices around 30%. Today, the London Metals Exchange launched its first steel-futures contract.

 After a record run-up in commodities prices, a Bloomberg survey of commodity analysts says only two commodities, corn and zinc, will rise this year. We sent this e-mail around the office and asked for comments. Here's what we got...

Badiali comment: I take my grains of salt by the pound with this stuff. The analysts in mining went bearish on base metals six months ago or more. They don't want anything to do with base metal stocks.

Copper was supposed to be the big loser (according to most of the analysts I read and hear speak). It peaked in May 2006 – everyone gave it up for dead. I've listened to analysts rail on and on that China won't need any more copper soon... very soon... any minute now...

Today, 21 months after its high, the price of copper is down a whopping 9%.

Ferris comment: I don't know if these guys know anything or not, and I'm personally long gold, coal, and oil & gas. But even I have to admit, it sure seems like a lot of people want to be long commodities right now.

 If you have commodities-related questions for Badiali, send him an e-mail at editorialfeedback@growthstockwire.com. Every Wednesday, we're publishing the best questions and Matt's responses in a special edition of Growth Stock Wire. Click here to view last week's issue.

 New highs: Chunghwa Telecom (CHT), streetTRACKS Gold (GLD), PowerShares Agriculture (DBA).

 No surprise here. One of our subscribers was drinking and e-mailing. We've come to expect it. Need to get something off your chest? Have a few drinks, and shoot us an e-mail at feedback@stansberryresearch.com.

 "Porter, it's all your fault that I am such a lousy asset manager. I read what you say and I say yes, yes, yes. I read what Dan says and I say YES! YES! YES!... buy sparingly, wait for the exceptional buy, then BUY BIG. But, ever time I read a monthly newsletter or special report from you guys I'm sold! THIS IS THE ONE!!! Stop hiring such convincing writers. I'm spread all over the place." – Paid-up subscriber Bob Hallock

 "I've had some drinks, but I'm not drunk, much. Or maybe I am. Anyways, you are a dick. But I love it when you write The Digest because I'm always entertained. On Wednesday you wrote about the trailing stops and I laughed. But now, I can see that some people wouldn't find it all that humorous due to the onslaught you have received about your "tongue in cheek" comments. Boo hoo. Sucks to be them. Yes, I must be half cut. I find you rather hilarious at the moment. In fact, I can't stop chuckling about all the whining going on. OK, time for another rye and water." – Paid-up subscriber Stephen

 "Your supposed jokes go over my head and just confuse the situation. If you want to write jokes go to Jay Leno and ask for work, and you'd find out just how un-funny you are. I'm looking for good financial advice not feeble attempts to be funny." – Paid-up and "PO'd" subscriber Maurie Deming

 "In your 22 February Digest, comments have come up on trailing stops. One of Steveie Sugar-rudes recommendations was QCC. I had taken out shares in this at the time and set in a stop at 25% below the stock price at the time. All in one day, the stop was exceeded, then the price shoot back up to near its original mark. That little session cost $500. If my stop wasn't in place, I still had choices left, however the stop was designed to protect, where in fact it damaged. Since then, I have been reluctant to use trailing stops." Paid-up subscriber Graham Perry

Goldsmith comment: It sounds like you entered your stops into the market. Market makers will happily drive a stock down to pick up your shares. Either keep note of your stops mentally or use an alert program like TradeStops.

Regards,

Sean Goldsmith

Baltimore, Maryland

February 25, 2008

Editor's note: Tom Dyson, the new editor of International Strategist, left for Brazil last Friday. He's taking an agricultural tour of the country – which produces 60% of the world's soybeans. With booming food demand from Asia and pressure from ethanol production, soy prices are soaring – up nearly 40% last year. That means Brazil is going to see billions in foreign investment. Tom is reporting on the ground, so our readers will know the best way to profit...

The Soybean Highway

By Tom Dyson

Yesterday, I took four plane trips. I arrived in Cuiaba, Brazil, at midday. Then I got on a bus...

I'd been on the bus for about three hours, when the driver punched the brakes and stopped the bus. The man standing in the aisle almost fell over. A truck in front of us had also stopped. The bus driver and several of the passengers got off the bus and joined the truck driver. I watched the driver bend down and peer under the bus, as if he were studying the front axel.

But, there was no problem with the bus. In Brazil, whenever the traffic stops, everyone gets out and stretches their legs. This was a routine traffic jam. Up ahead, two soybean trucks had collided and blocked the southbound lane. Soybeans had spilled all over the road in a pile.

An hour later, my bus was overtaking another soybean truck when the bus engine cut out. The lights died and air conditioning went silent. The passengers all sat up in their seats and looked forward. We coasted to a stop. Five more soybean trucks rocked the bus as they charged past in a tight convoy. Everyone got off the bus again. It was raining. This time the driver crawled under the bus. I heard tinkering, then he reemerged, got back into his seat and started the bus. The passengers got back on, and away we went...

This is BR-163, the Soybean Highway. Everyday, 1,000 soybean trucks head south from the fields of Mato Grosso to the Atlantic ports using this road. They return with fertilizer. It took my bus seven hours to cover 177 miles. I'm guessing soybean trucks take at least five days to make the 2,758-mile round trip to and from the Port of Santos.

BR-163 is not a safe road. The potholes swallow motorcycles. The vegetation at the side of the highway is so thick you can't see the road signs. It costs $77 to ship a ton of soybeans from Iowa to Shanghai, according to Fortune. It costs $202 to ship a ton of soybeans from this area of Brazil.

And now, Brazilian law lets truckers drive only eight hours a day. And a truck needs two drivers. This will increase trucking costs even more.

I noted the prices of gas at stations on the way and converted them into dollar per gallon. Gasoline costs $6.50 a gallon. Diesel costs $4.62 a gallon, and ethanol costs $3.73 a gallon...

Today, I'm visiting the largest slaughterhouse in Latin America and a brand new biodiesel refinery... I'll file more dispatches later this week...

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