By Elliott H. Gue
Did you know that it takes 15.4 pounds of feed grain to produce 2.2 pounds of beef, 8.8 pounds of grain to produce 2.2 pounds of pork, and 4.4 pounds of grain to produce 2.2 pounds of poultry?
This is more than an interesting bit of trivia--it’s the key to one of the best investment opportunities of the next decade.
Meat consumption is closely correlated to personal income. Consumers in poorer countries tend to rely almost exclusively on rice and basic cereals for nutrition. But as household incomes increase in emerging markets, calorie intake and meat consumption follow suit.
As households eat more meat, demand for grains multiplies in order to feed all that livestock.
Increased demand for grains such as wheat and corn combines with some serious challenges on the supply side of the equation to push agricultural prices higher.
Rapid urbanization in key markets such as China reduces the amount of arable land, increasing dependence on imports.
Meanwhile, ethanol-production mandates in the US can absorb as much as a third of the country’s massive harvest. Despite a bumper crop in 2009, the US ratio of corn stocks to consumption continues to hover near 30-year lows.
Adverse weather can tighten the screws even further. This year, extended droughts in China and Russia, and too much heat and rain in the US Corn Belt have reduced the global harvest and bolster grain prices.
Grain prices have already skyrocketed. Corn prices recently topped $5 per bushel--a level breached only twice in the last 50 years. Soybeans aren’t far from an all-time high.
And it’s just the beginning.
Agricultural prices are set to climb in both the near and long term, which is setting up one of the greatest investment opportunities of our lifetimes.
A Bull Market in Grain
In the next 20 years, the world population will grow 27 percent. Yet arable land will decrease by 18 percent. And per-capita water will decline by a third.
In other words, there will be more mouths to feed, but less water and land for cultivating crops.
We’ve already seen a preview of the food crisis to come. In 2007 food prices exploded, and riots broke out in 30 countries.
Federal troops were called in to guard warehouses and fields, and the food crisis toppled at least one government.
That’s why governments and corporations worldwide are pouring billions of dollars into research and development that can help avert future crises.
As investors, we have an opportunity to double our money in companies that will reap the rewards of soaring demand for fertilizer, genetically modified crop seed and clean water.
The Seeds of Future Wealth
Biotechnology revolutionized medicine in the 1980s. Now biotech is launching a new agricultural revolution.
Scientists are selecting beneficial traits from one kind of plant and transferring them to another, giving us drought- and insect-resistant seeds.
These genetically modified (GM) seeds are critical to increasing crop production are one way Personal Finance readers can profit from the agriculture boom.
GM crops have met strong resistance from environmentalists and consumer advocacy groups, but that won’t be enough to turn the tide. GM crops offer higher yields than conventional seeds. When it comes down to it, the consumption of non-GM and organic food is an expensive luxury that much of the developing can not afford.
The biotech seed industry is taking off quickly. Already, more than 75 percent of the world’s soybeans and a quarter of all cotton are grown from GM seeds that control weeds, fight pests and increase yields.
Still, only to 7 percent of the world’s farmland uses GM seeds, so there's huge growth ahead.
Blockbuster Products = Blockbuster Profits
There are dozens of agricultural seed companies, but just as with pharmaceutical companies, the best investment is the one with the biggest blockbusters either on the market or in the pipeline.
Monsanto (NYSE: MON) is the world leader in genetically modified seeds and the single biggest innovator in agricultural technology.
The company’s blockbuster corn seeds increase crop yield, and its canola plants do their own weed control.
Monsanto spends incredible $2.6 million on research and development each day, ensuring that the company boasts a deeper, richer pipeline than any competitor.
No one comes close to Monsanto’s capacity to address the world’s food problems--and no other seed producer offers you more profit potential.
Farmers ask for Monsanto’s products by name, eager to boost their income through the company’s higher yields and lower insecticide costs.
Another top bet is a company that’s perfectly positioned to capitalize on the food and crop trends we’ve been discussing.
The company processes soybeans and other oilseeds into edible oil and animal feed. Along with meat, the consumption of fats, oils and sweeteners also rises sharply with income.
My top agribusiness pick has that covered, too. Its sugar and bioenergy division turns sugarcane into sugar, ethanol and other products. This must-own company is a leading player in Brazil, the world’s No. 1 sugarcane producer.
Get the full details on this stock in my new Special Report, Biotech Millionaires: Investing in the NEW Biotech Agricultural Revolution. It’s yours free when you accept this no-risk invitation to try Personal Finance.
Copyright 2010 KCI Investing
