Rising oil prices are driving up the prices of virtually everything — manufacturing … transportation … even the cost of money (through higher interest rates).
Now, another sector of the natural resources arena — one of the most critical of all — is also starting to soar: Food!
Investing in food might not be as hot as investing in gold or oil. But what counts is that the profit potential can be just as large.
Plus, when I invest in this sector, I feel I’m also helping to funnel capital toward addressing the greatest scandal of our time:
• 800 million people going without food each and every day
• Six million deaths each year for lack of basic necessities
• One child starving to death every five seconds
I got a glimpse of this on my recent trip to Asia. Despite the massive amounts of wealth being created there, poverty still abounds. The sick and hungry are on almost every street corner. Clean water is often scarce; good nutrition, a pipedream.
And I believe the timing is right. After sliding sharply last year, prices for agricultural products have been showing very strong signs of turning the corner.
The charts and technical trading patterns of corn, wheat, and soybeans illustrate this: Prices are thrusting higher, showing classic signs of breakouts to the upside.
There are also real fundamental changes taking place in the industry, and the upshot will be higher prices …
Technological Improvements Are Impressive. But They’re Not Overcoming the Chronic Scarcity of Arable Land
If you haven’t been on a farm in a while, you might be startled to learn that the “farmer in the dell†has become the “farmer with a Dell.â€
Just look at some of the technology being used:
- Tractors use GPS (global positioning satellite) technology to plow perfect rows on autopilot. And they can precisely repeat these rows year after year to reduce soil compaction.
- Infrared sensors control how much fertilizer is applied to each part of a field based on instant soil analysis.
- Harvesters compute the exact crop production rate from each square foot of the land.
- Computerized planters can adjust the amount of seed to apply to each patch of ground according to its fertility.
But no amount of technology can change the fact that the world is running out of arable land to cultivate.
This is especially true right here in the U.S., one of the countries producing the lion’s share of the world’s food. We simply do not have enough farmland to go around.
Sure, you can still drive for hours in the Plains states and see nothing but grain. But we’re now consuming more agricultural products than we can produce.
New technologies, like genetically modified organisms (GMO), can improve production-per-acre. But there’s a point at which the soil can yield no more.
Other alternative farming methods like hydroponics (growing plants without soil) and aquaculture/aquaponics (fish farming) may hold some promise for additional food production. But unfortunately, these methods are only in their infancy when it comes to commercial applications.
That’s bad news when you consider that …
Exploding World Population Is Driving
A Massively Growing Demand for Food!
We’ve already seen this dynamic in many other natural resources — oil, gold, silver, copper, uranium. Now we’re seeing it in food products. And much as with those resources, the strongest demand for food is coming from Asia.
Consider China, for example:
Although China still maintains its one-child-per family policy in the cities, it’s not illegal to have more children, provided the family effectively pays its own way for education and other social services. And with the increasing wealth in the urban areas, many more couples are opting to do just that.
Result: the overall fertility rate in China has been rising, now approaching two children per family. And China expects its population to increase by 300 million to 1.6 billion by 2050.
Meanwhile, domestic supplies have been shrinking: China’s grain harvests, including wheat, corn and rice, have declined in four of the last five years. Why? Because …
- China’s arable land is shrinking at the rate of 2.47 million acres a year. Construction is eating up land once used for growing crops.
- Aquifers have been dropping rapidly, reducing irrigation water supplies.
- Farmland, especially near urban centers, is being converted from grain production to higher value crops like fresh fruits and vegetables.
- Urban migration is depleting the countryside of able-bodied field workers.
So increasingly, China has been turning to imports for its grain supplies.
Meanwhile, India, the world’s second most populous country, is also facing a severe food shortage.
Over the next 15 years, India is expected to add another 300 million people to its current population of one billion. That’s the equivalent of adding the entire current population of the U.S. Fortunately, right now, India is still self-sufficient in terms of food production.
But that could all change quickly. Like China, India is experiencing mass migration to urban centers like Mumbai, Calcutta, and Delhi. That means fewer farmers, and more urban sprawl.
Another is India’s changing diet. From 1993 through 2020, demand for meat and eggs is projected to quadruple! That translates directly into heavier demand for cereal grains and soybean feeds for the livestock.
And although China and India are by far the biggest consumers of grains and soybeans, they are not the only sources of burgeoning demand for agricultural goods …
By 2030, there will be another 1.4 billion MORE new mouths to feed from other corners of the globe.
Sub-Saharan Africa is one of the demographic hotspots. Population growth there is going to explode from 642 million today to 1.4 billion in the next 25 years.
Already, at least 23 African nations have inadequate food supplies. One in three Africans is undernourished. One child in fourteen dies before age five from malnutrition.
To feed the world, hundreds of millions of bushels of wheat and corn will have to come from somewhere. But where?
A Shifting Bread Basket
Thirty years ago, the United States was “The Bread Basket of the World.†But as I mentioned earlier, now we can barely feed ourselves.
I think it will be primarily South America that steps in to fill the void. South America has the few remaining vast regions on the planet with large tracts of undeveloped arable land.
China — a huge customer for U.S. farm products — already recognizes that North America will not be able to fulfill all of its food needs. So the Chinese have been actively shopping for their groceries in South America. And China’s President Hu Jintao has declared his government plans to invest $100 billion in Latin America over the next decade.
The areas with the most potential:
- Brazil will soon be the largest soybean exporter in the world, with 57 million acres now under cultivation, with millions more acres to come.
- Argentina has doubled its soybean production from 17 million acres in 1997 to more than 34 million acres today. Argentina’s corn production is also soaring.
- Bolivia, Uruguay, and Paraguay are also beginning to flex some muscle in their agricultural export capability.
Here are a few ways to capitalize on the trend …
Three Agricultural
Companies to Consider
Sadia S.A. (SDA) — a Brazilian food producer with operations in Brazil, Argentina, Chile, Uruguay, Paraguay, and Bolivia. It is one of the largest food companies in the region. Half of its sales come from outside of South America, with Asia and the Middle East particularly large buyers.
Archer Daniels Midland (ADM) — an agribusiness giant that grows and processes corn, wheat, soybeans, barley, and other foods. For the nine months ended March 31, ADM’s revenues rose 2% to $27.05 billion. Net income rose 6% to $901.8 million. But I think they’re going to soar in the months and years ahead. After all, ADM is a giant in the industry.
Cresud Inc. (CRESY) — An Argentina-based grower of wheat, corn, and soybeans. Cresud also raises beef and dairy cattle.
You can buy these kinds of companies on your own. Or if you want specific buy-and-sell instructions covering all natural resource sectors, including follow-ups and flash alerts, consider my Real Wealth Report.
Other Natural Resources
Still Equally Attractive
While food is just starting to boom, other natural resources are just beginning the second, more dramatic phase of their rise. And everything I’ve seen on my recent trip to Asia underscores that view.
So if you’ve acted on the recommendations in my Real Wealth Report, hold your core gold positions, your oil and energy positions, and all natural resource plays.
Plus, stay alert for my new recommendations. I expect some terrific buying opportunities in the days ahead.
Best wishes,
Larry
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About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Colleen Collins, Amber Dakar, Ekaterina Evseeva, Monica Lewman-Garcia, Wendy Montes de Oca, Jennifer Moran, Red Morgan, and Julie Trudeau.
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