Latin America Gives Monsanto a Boost

Demand for more and better food is certain to keep rising in the coming years as the world’s population expands and becomes wealthier. As we wrote in October, recent studies show that global food demand could soar by 100% to 110% between 2005 and 2050.

For many developing-world consumers, better food means eating more meat. That’s fueling an ongoing trend: 50 years ago, the world consumed a total of 70 million metric tons of meat a year. By 2007, that had soared to 268 million metric tons—an increase of more than 280%. As Investing Daily’s Ben Shepherd wrote in “Farm to Market: Best Agriculture ETF,” China’s per capita meat consumption has risen 90% over the past decade, while dairy consumption has nearly tripled.

Rising meat demand is just one factor pushing up food prices around the world, something that looks like it will continue for the foreseeable future. According to the USDA, food prices rose between 2.5% and 3.5% in the U.S. in 2012. This year, the agency expects inflation to remain strong for most animal-based products due to the higher cost of feed. In addition, the agency sees prices for other foods, such as cereals and bakery products, rising at above average rates this year.

Higher prices will continue to give farmers a strong incentive to boost their crop yields, putting any company that can help facilitate that in a great position for gains. As Investing Daily’s John Persinos recently pointed out in “Fertilize Your Portfolio,” this includes companies that make potash and other fertilizers. One fertilizer stock that Persinos likes is Passport Potash (TSXV: PPI, OTCQX: PPRTF).

Latin America Will Be a Big Growth Area

India and China will continue to be key markets for agriculture firms, but investors shouldn’t overlook Latin America. The region’s economy has held up relatively well during the global slowdown, and its growth is expected to accelerate in the coming years.

According to a recent report from the OECD, Latin America’s economic growth likely slowed to 3.2% in 2012 from 4.4% in 2011. That’s the first slowdown in a decade. But the organization expects growth to pick up to 4.0% in 2013. To put that in context, the U.S. economy is expected to grow between 2.5% and 3.0% this year.

In addition, Latin America is one of the world’s most fertile growing regions, as U.K.-based Moneyweek.com’s James McKeigue writes:

“Take South America. It’s divided between mountains, jungle, flatlands and coastal regions. This diversity is good for farmers because—aside from extremes such as Chile’s arid Atacama Desert or the frozen southern tip of Argentina—it means that almost anything can be grown there.”

The continent’s farm products range from wine to cattle. It’s also a fertile area for grain, with Brazil and Argentina among the world’s leading producers. And there’s plenty of room for expansion: according to a recent estimate from the World Bank cited by McKeigue, Latin America is home to about a third of the world’s potential arable land: areas that could be producing food but aren’t. The region also has roughly a third of the world’s freshwater resources to help it put that land to work.

Monsanto’s Latin American Sales Are Soaring

One agribusiness firm that’s seeing strong growth in Latin America is Monsanto (NYSE: MON). The stock is up 24.6% since we last highlighted it as a good way to profit from rising emerging-market food demand in February 2012.

The company operates through two main divisions: Seed Genomics, which makes seeds that are genetically modified to produce higher yields and resist pests, and Agricultural Productivity, which makes pest-control products for crops, lawns and gardens.

Monsanto reported far better than expected quarterly results yesterday, thanks largely to 27% higher sales of corn products. That was mainly due to rising demand for its corn seeds from Brazil, Argentina and Mexico.

In its fiscal 2013 third quarter, which ended November 30, 2012, Monsanto’s sales rose 20.5%, to $2.9 billion from $2.4 billion a year earlier. That was well ahead of the $2.6 billion that the Street was looking for. Earnings soared to $339 million, or $0.63 a share, from $126 million, or $0.23. Excluding income from discontinued operations, Monsanto earned $0.62 a share. That far exceeded the consensus estimate of $0.36.

Buoyed by the strong results, Monsanto raised its earnings forecast for all of fiscal 2013 to $4.30 to $4.40 a share, up from its earlier prediction of $4.18 to $4.32.

Global Push Will Continue

The company aims to make further gains in South America, where it expects demand for genetically modified crops to continue rising: Brazil is now the world’s second-biggest market for genetically modified seeds. As well, Monsanto recently predicted that international markets would account for half its seed sales growth during its 2013 fiscal year, which ends in August.

Monsanto could face tighter regulations due to ongoing opposition to genetically modified crops. That’s a risk of investing in the company. However, its geographically diverse business and wide range of products help mitigate that risk.

Monsanto is also built on a strong foundation: its long-term debt of $2.0 billion is well below its $4.6 billion of cash and cash equivalents. Quarterly dividends of $0.38 yield 1.52%.

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   Reply Wayne Winters January 12, 2013 at 8:19 AM EDT

   Question is . how do i go about buying shares. and what is the least i could buy?