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.
The world’s population recently exceeded seven billion, and 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 5.1 billion in 2020, the quality of diet increases, as well.
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 fell 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 such as cold weather in much of the US; drought in California, Brazil, and Indonesia’s as rice, corn, soybean, coffee, cocoa and palm production wane plus worries about exports of wheat and corn from the Ukraine and Russia.
The result: while U.S. stocks are flat so far this year, many food and grain commodities are up at least 15-20%. These include cattle, hogs, soybeans, wheat, corn, coffee and orange juice.
The good news is that you have many choices to invest in this rising trend.
A shotgun approach might include the Market Vectors Agribusiness (MOO) ETF that provides exposure to companies that derive at least 50% of their revenues from agricultural business.
Launched in August 2007, MOO has attracted more than $5.6 billion in assets and has returned 9.8% year-to-date. It holds 53 stocks, most of which are large cap (84%) companies. Monsanto, Potash Corp. of Saskatchewan and Deere are the top three holdings for the fund. The fund is top-heavy with top ten holdings accounting for 57% of the assets.
Another favorite of mine is the PowerShares DB Agriculture Fund (DBA). After three consecutive down years, it has surged 17% so far this year. The fund offers exposure to a basket of 15 agricultural commodity futures covering cattle, hogs, wheat, corn, soybeans, sugar, cocoa, coffee and more.
A rifle strategy of picking specific stocks could yield much fatter profits.
A Value Bounce recommendation of a fertilizer company is up 18% so far this year. On our watch list is an agricultural company selling below book value with a 4.1% dividend yield.
You can’t go wrong fattening your global portfolio by investing in food.
