Agricultural stocks and other food-related investments are a way to feed your portfolio in this global climate of rising demand for more and better food.
Before we discuss agricultural stocks, as we celebrate Thanksgiving, it may be a time to reflect on how lucky Americans are compared to the rest of the world.
Food represents a reasonable 14% of American consumer spending, but in emerging market countries it ranges between 30% and 70%. In India, where 75% of the population lives on $2 a day and 40% of children are malnourished, 48% of income is spent on food!
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The world’s population, now exceeding seven billion, adds 200,000 people per day.
By 2050, the planet is expected to hit nine billion people and arable land, water and fertilizer are all under pressure to provide for them.
And rising incomes in countries such as the Philippines, Peru and Ethiopia mean more money for any family’s top priority: food.
To meet this growing demand, the World Bank estimates that farms worldwide will have to produce more food in the next 50 years than it did in the last 10,000 years. In addition, as the global middle class has gone from 2.6 billion to 5 billion in 2020, the quality of diets is increasing as well. It’s worth looking at this great trend and how it’s affecting agricultural stocks.
Taiwan is a telling case study of what’s happening all over the world. A study by two economists from Nomura found that consumption of rice and vegetables in that country fell as incomes increased but the demand for meat, milk and fruit jumped. And eating more beef, pork and chicken drives demand for grain as animal feed.
This increased demand and unusual weather—cold weather in much of the US; drought in California, Brazil, and Indonesia as rice, corn, soybean, coffee, cocoa and palm production wanes—plus worries about exports of wheat and corn from the Ukraine and Russia being interrupted all put pressure on prices.
The good news is that you have many agricultural stocks choices to invest in this rising trend.
A shotgun approach might include the Market Vectors Agribusiness Fund (MOO), an exchange-traded vehicle that was launched in 2007 and provides exposure to companies that derive at least 50% of their revenues from agricultural businesses.
Among its holdings, you’ll find a variety of companies such as farm equipment, seed and fertilizer, animal health and food transport and processing companies. Monsanto (MON), Potash Corp. (POT) and Deere (DE) are the top three holdings for the fund.
Breaking this down, about a third of MOO’s assets are in consumer staples, with another third in materials and the remainder split between industrial stocks and healthcare companies.
Roughly half of the fund’s assets are in U.S. stocks, with Canada and Japan among the other top countries. MOO is up 15.6% so far in 2019.
Another food play is the PowerShares DB Agriculture Fund (DBA), an exchange-traded fund. This ETF offers direct exposure to a basket of 15 agricultural commodity futures covering cattle, hogs, wheat, corn, soybeans, sugar, cocoa, coffee and more.
As for agricultural stocks, Archer Daniels Midland (ADM) is one of the world’s largest agricultural processors and food ingredient providers.
It is a monster company with 40,000 employees spread across 200 countries. As with most food companies, profit margins are pretty thin but growth is steady but not spectacular. This is a conservative stock that will hold its own in the toughest of markets.
Having companies that provide the basics of life in your portfolio makes sense so consider adding these ideas to your buy list.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More