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Fat Profits from Food
10/30/2014 9:00 am EST
In times of market turbulence, it pays to invest in the basics of life. And you can't get more basic than food, explains Carl Delfeld, global expert and editor of Wealth Daily.
Food represents a reasonable 14% of American consumer spending but in emerging market countries, it can reach 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 that growth.
In addition, 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 they did in the last 10,000.
In addition, as the global middle class is growing from 2.6 billion to 5.1 billion in 2020, the quality of diet is increasing, as well.
While US 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 for investing in this rising trend. Indeed, you can't go wrong fattening your global portfolio with food investments.
A shotgun approach to this might be the Market Vectors Agribusiness ETF (MOO), which provides exposure to companies that derive at least 50% of their revenues from agricultural business.
Launched in August 2007, MOO has attracted more than $6 billion in assets and holds 53 stocks, most of which (84%) are large-cap companies.
Another favorite of mine is the PowerShares DB Agriculture Fund (DBA). In a flat market, it is up 8.2% 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.
However, a rifle strategy of picking specific stocks could yield much fatter profits. One controversial stock that I believe will be a big winner is Monsanto (MON).
Monsanto has been creating rice seeds fortified with vitamin A to save lives in malnourished regions. It has also developed a pest-resistant cotton and drought-resistant seeds to improve production on African farms.
Despite worldwide negative press, MON is projecting record worldwide seed volume this year and continued strength in its herbicide divisions. It is expected to see earnings surge to 16% in 2014.
Demand for higher food production is so pressing that increased yields from genetically engineered seeds are essential. Monsanto also expects to, at least, double full-year ongoing earnings by the end of fiscal year 2019.
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