Starving For Profits

Today is Earth Day. I hope everyone celebrates in an appropriate manner. One of the many reasons to be grateful for our planet is the wide variety of tasty and nutritious food that it provides. Sadly, some of us have more food than we need while others go hungry. The rapidly globalizing economy is changing patterns of production and consumption. These changes are not coming easily in some cases.

On the positive side, newly affluent consumers in places like China and India are upgrading their diets to include more meat. This creates demand for more grains with which to feed growing herds of cattle, pigs and other livestock. Meanwhile, Western governments, alarmed at higher energy prices and predictions of global warming, are encouraging the use of biofuels made from grains like corn. The inevitable result is skyrocketing demand for grains — and higher prices. World wheat prices have more than doubled in the last year. Rice is in particularly short supply, a fact which has led to riots in some Asian countries. Even wealthy Japan is running short of staples like butter. Americans who think they are immune to such things may want to think again. Costco wholesale clubs in some parts of the nation are beginning to limit large purchases of flour, rice, and cooking oil. Some economists are warning that the U.S. farming sector, though strong for the moment, could face big problems soon.

Resolving these issues is largely a political matter. For investors, there is a lot of potential opportunity in the food crisis. Consider the humble mineral called potash. It is a primary component of agricultural fertilizer and consequently is in great demand right now. Potash prices have more than doubled in the last year, from $214 to $502 per ton. Large potash deposits are relatively rare and a handful of companies control most of the world’s supply. To no great surprise, the stocks of these companies are rocketing higher. Will they continue to rise? It’s hard to say. Having tasted the fruits of prosperity, it seems unlikely that people in emerging economies will give up the progress they have made in recent years. On the other hand, they may not have much choice.

For investors who don’t wish to buy individual stocks or commodities, a new ETF called Market Vectors Agribusiness (MOO) is a good way to zero in on the food and agriculture sector.