Investing in the Companies that Will Feed the World
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The following chart shows a very important situation that should be closely monitored in the middle and long term: as the world population increases; land available for food production has been decreasing.
Source: Laguna Pastoral Company, published in Business Insider.
Not only that, but in high growth emerging markets like China, calorie consumption per capita is increasing rapidly as the population changes its consumption habits with higher disposable income, and that trend won´t be reversed anytime soon.
The supply and demand equation for crops and other agricultural products is changing considerably, and the world is going to need some strong productivity enhancements if we want to be sure that we have enough food in the future. More population, which at the same time is consuming more calories per capita, combined with less available land means that we need more productivity per square feet.
Monsanto (NYSE: MON) is one of the companies benefiting from growing demand in the agribusiness sector. The company is one of the world leaders in genetically modified seeds and related products that enhance land productivity. Monsanto has a big exposure to regions with high growth potential like Latin America and China, but at the same time the company has received a lot of criticism when it comes to the environmental and health consequences of its products.
One of Monsanto´s direct competitors is Syngenta (NYSE: SYT), which operates in both the seed production and crop protection business. Syngenta is smaller than Monsanto with a market capitalization of $30.6 billion USD versus more than $40.8 billion USD for Monsanto, and is also showing slower growth rates lately. But the company has similar profitability ratios and is a better alternative for investors who feel concerned about the many criticisms that Monsanto has received on health and ecological issues.
Fertilizers and nutrients are another sector that should see growing profits in the long term with the increasing need for more efficient agro production. A strong company in this space is Agrium (NYSE: AGU) which in February reported record results due to strength in both its retail and wholesale segment. Agrium saw a 32.5% increase in revenue for the last quarter, and perspectives are optimistic for the rest of the year according to the company´s management.
In the machinery space a very interesting bet could be Deere & Company (NYSE: DE) which is famous for its tractors and other agro machinery around the world. These kind of products are quite cyclical, so earnings are not easy to predict for companies like Deere, but this business has done extremely well over the long term, and demand for its products should remain quite strong in the future despites the normal cyclical oscillations.
A nice vehicle for a diversified position in the Agribusiness industry could be the Market Vectors Agribusiness ETF (NYSEMKT: MOO). This ETF has a portfolio comprised of 25 companies in the different segments of the global agribusiness industry, which may be a smart way to capitalize the favorable long term trends that this industry faces while at the same time controlling risks and volatility.
The agribusiness industry will need to sustain productivity increases for many years if it will keep producing enough food and agro products on a global scale. There are many attractive companies that stand to benefit themselves and their shareholders from this situation over the following years.
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