2 Ways to Tap Into Rising Food Demand
According to a recent study by the University of California Santa Barbara and the University of Minnesota, world food demand could rise by 100% to 110% between 2005 and 2050.
Most of that increase will come from developing countries, whose populations require more food as they expand. What’s more, these nations’ rapid growth is creating a whole new middle class that’s demanding better-quality fare than the simple meals their parents and grandparents ate.
That has fueled a worldwide surge in meat consumption: consider that 50 years ago, the world consumed a total of 70 million metric tons of meat. By 2007, the last year for which there is data available, that had jumped to 268 million metric tons. Meat consumption is a huge driver of demand for grain and corn due to the sheer amount of these foods it takes to raise an animal, roughly 10 pounds for every pound of beef.
When you put that all together, you start to get a clearer picture of why prices for corn and other crops have spiked in the past few years. Other medium-term trends have also contributed, such as increased use of corn-based ethanol in gasoline. As well, short-term events, like weather, will always have an impact on the farming business. Last summer’s record-breaking drought in the Midwest, for example, depressed U.S. crop yields and further boosted prices.
Rising crop prices put a squeeze on consumers’ wallets, because they directly translate into higher costs at the supermarket. However, they’re a boon to farmers. According to Bloomberg, U.S. farm profits could hit $122.2 billion this year—a new record.
An All-in-One Approach to Agricultural Investing
An easy way to profit from higher food demand is to buy agribusiness-focused ETFs. In “Farm to Market: Best Agriculture ETF,” Investing Daily’s Ben Shepherd recently took an in-depth look at just such a fund: the Market Vectors Agribusiness ETF (NYSE: MOO)
The fund’s holdings include a wide range of agribusiness companies, from fertilizer makers like The Mosaic Company (NYSE:MOS)—see below—to food makers like Archer Daniels Midland (NYSE: ADM) and equipment manufacturers like Deere & Co. (NYSE: DE).
The fund holds 39.1% of its assets in the U.S., but it also holds stocks in a number of other countries, including Canada (14.9%), Singapore (9.0%), Malaysia (5.7%) and the Netherlands (3.7%).
Market Vectors Global Agribusiness ETF has risen 26% in the past year. Its yearly expense ratio is a low 0.56%.
The Mosaic Company Is Getting Ready for Higher Potash Prices
Another firm that’s aiming to profit from higher food demand is The Mosaic Company (NYSE: MOS), which reported its latest quarterly results yesterday.
Mosaic is the world’s biggest combined producer of potash and phosphates for fertilizers. Its production capacity currently stands at 10.4 million metric tons of potash and 10.3 million metric tons of phosphate. To further boost its output, Mosaic plans to spend $1.5 billion to $1.8 billion over the coming year to expand its operations, particularly its mines in the Canadian province of Saskatchewan.
The company’s latest quarterly revenue was lower than expected, falling 18.75%, to $2.5 billion from $3.1 billion a year ago. Potash prices have drifted downward since the beginning of 2012, and were largely flat in the quarter as Mosaic cut its output along with other potash producers. That has helped support prices in the face of the current economic slowdown. However, potash sales volumes rose, which helped push the potash division’s revenue up by 10%
That gain was offset by a 30% sales decline at the phosphate division due to lower selling prices and a number of short-term setbacks: the company started the quarter with low phosphate inventories, and its sales volumes were negatively affected by longer-than-expected routine plant shutdowns and disruptions caused by poor weather, including Hurricane Isaac.
The lower sales pushed down Mosaic’s profits by 18.3%, to $429.4 million, or $1.01 a share, from $526.0 million, or $1.17.
The stock has risen 18% in the past year, but it continues to be highly volatile. However, it does pay a reasonable dividend: the annual rate of $1.00 yields 1.79%. It also trades at 13 times Mosaic’s last twelve months of earnings, a ratio that’s roughly in line with other potash producers.
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