Is the epic boom in commodities over?

September 19, 2013, 11:57 AM UTC

It was one of the best calls in memory. Back in the late 1990s, when the world was in the thrall of the dotcom bubble, Jim Rogers foresaw a China-driven commodities boom. In the decade-plus since, hundreds of billions poured into the sector — including to investment products from UBS, Merrill Lynch, and others based on his Rogers International Commodities Index — to try to capitalize on the surging prices of oil, metals, and grains. But lately, with gold 20% below its high and miners cutting back on new projects, a growing chorus of Wall Street voices has begun to declare the boom over. Rogers, 70, disagrees. From Singapore, where he moved his family six years ago to be closer to the action in China, the onetime hedge fund partner of George Soros tells Fortune why he believes commodities can still go higher. Edited excerpts:

More and more people on Wall Street say the commodities boom is over. Is it?

That’s a very good question. I have certainly noticed what you’ve noticed, and it’s a good sign from my point of view. I’ve been around markets long enough to know that when everybody’s on one side of the boat, it’s probably not the right side to be on. During the long bull market in equities between 1982 and 2000, stocks collapsed in 1987 and they fell in ’90, ’94, ’97, and ’98. Every time, people said, “Well, the bull market’s over.” But the bull market was not over. And like most long bull markets, it eventually ended in a mania and a bubble.

So you don’t think we’ve reached the mania stage yet with commodities?

I don’t see enough supply having come onstream in most commodities to end the bull market. Agriculture inventories are near historical lows because the world has consumed more than it grows for a decade now. Many minerals companies have canceled capital-spending programs because they, too, have heard from Wall Street that the boom is over. I haven’t seen a mania yet.

What looks most attractive now?

The way I normally invest is, I look for the things that are most depressed. So I would be looking at something like sugar. It’s up a lot over the past several years, but it’s still down 75% from its all-time high. Natural gas is also extremely depressed from its all-time high.

Natural-gas prices have been driven down by new supply from shale gas. How does that affect your outlook?

There’s been a great boom in natural-gas drilling. I read in the press that America is going to be energy-independent and save the world, etc. But the number of rigs drilling for shale gas is down sharply in the past couple of years. Many drillers have had to reduce their reserve estimates, and we’re finding that production declines very quickly in those shale wells. When I see a company like Shell taking a $2 billion write-down on its shale assets, I take that seriously.

How should a regular investor be approaching commodities?

We’re going to have huge problems with agriculture and food in the next decade. So you can buy farmland. You can invest in an index of agricultural commodities. Or you can buy stocks of seed or fertilizer companies. There are public plantation stocks that trade; I own shares of a sugar company called MSM Malaysia Holdings.

China’s GDP growth has slowed. Are there problems ahead?

China has been trying to slow its economy for quite some time now. They’ve had an inflation problem. They’ve had a real estate bubble. But I know, having traveled around the world enough, that something positive is going on in China and has been for a while. They are growing, they have a high savings rate, they have a high rate of investment, and they have huge international reserves.

So you’re still long China?

My approach to China is different from anything else in which I’ve ever invested. When Chinese shares collapse, I buy some for my daughters and put them away with the idea that someday they’re going to say, “Boy, you must have been a smart old man.” The last time I bought Chinese stocks in a big way was November of 2008. If and when there’s a panic, I hope I’m smart enough to buy again. My Chinese shares are not for sale. That does not apply to anything else I invest in.

What else are you bullish on?

I’m looking at Russia. If there’s turmoil and stocks fall, it could be a great buying opportunity. I have a lot of currency investments. I do have commodities, especially agricultural ones. Mostly I’m sitting here looking out the window and wondering what to do.

Which currencies do you like?

I own the Chinese renminbi, the Hong Kong dollar, and the U.S. dollar. The U.S. dollar is an unmitigated disaster. But I believe there’ll be more turmoil in the world, and many people will run to the U.S. dollar because it’s perceived as a safe haven. The Hong Kong dollar is tied to the U.S. dollar. Someday, once the renminbi is convertible, the Hong Kong dollar will disappear and be swapped for the renminbi. So it’s a backdoor way into the renminbi. This won’t happen anytime soon. Till then it’s a way to be long the U.S. dollar with a call option on the renminbi down the road.

This story is from the October 07, 2013 issue of Fortune.