Two Commodities to Buy in 2011

Investment guru Jim Rogers may like gold - but he LOVES silver.

“I would rather own silver than gold," Rogers tells India's "ET Now."

“Silver is still 40 percent below its all-time high. So silver has not been any sort of great bubble compared to perhaps some other assets we know." (Source: Moneynews.com)

And Jim, an agricultural bull since he opened his commodity fund in 1998, picks rice as his favorite grain:

“Likewise for the rice, if rice goes down, I will buy more rice. So both the silver and rice have a great future for the next few years,” Rogers says.

Incidentally there was an article in today's Wall Street Journal that reported farmers are reducing acreage for rice by as much as 30%, in favor of higher priced cotton and soybeans:

A shift in planting likely will come in the spring when farmers sow their fields in Arkansas and Louisiana, analysts said. They are projecting as much as a 30% cut in acreage devoted to long-grain rice. Growers will turn to soybeans, cotton or other crops after becoming frustrated with rice prices, which have lagged behind other agricultural commodities.

In 2010, U.S. rice futures fell nearly 4%, in contrast to soybean futures that climbed 34% and cotton futures that rose 91%. Driving the price gains were concerns that production wouldn't keep pace with demand, particularly as China's appetite for imports surged.

With corn, soybeans, cotton, and rice often competing for the same land, the sharp speculator can often do quite well buying the laggard(s) - which, in this case, is rice.

Precisely because farmers usually neglect the crop with the lagging price, and instead plant the crops that have already rallied. Which reduces the supply of said grain.

(Click to enlarge)

Rough rice is still well off its 2008 highs - with potential acreage reductions on tap, we could see a breakout soon. (Source: Barchart.com)

This is exactly the reason we we'd been salivating over the potential for cotton for so long - it was a matter of when prices would rocket, not if. And rocket they did!

(Click to enlarge)

When cotton broke out - largely thanks to supply constraints - it really did a moonshot!

The playbook was analogous with King Cotton - soybeans and corn had been rallying for years, while cotton's price languished. So farmers who had traditionally planted cotton increasingly got eyes for the sexier returns its ag cousins could bring instead. Supply fell - and soon after, prices rocketed.

So if you're looking to invest like Jim Rogers - and get some exposure to the grains - it looks like rice is the most reasonably priced starch for your plate today.

Hat tip Daily Crux for the original link.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.