Food does not magically appear in your local food store. Someone must transport that food from the farmer-producer to the processing company, and then ultimately to where you shop. The same is true on a global basis. Agri-Commodities must move from producer nations to those countries that have Agri-Commodity production deficits. In short, those nations that do not produce sufficient food to feed their citizens must import those foods from nations with Agri-Commodity production surpluses.
Seven nations dominate the global Agri-Commodity export business. Ranking them in terms of size, the major grain exporters are the U.S., Argentina, Ukraine, Australia, Brazil, Russia, and Canada. In a normal year, these nations represent more than 75% of coarse grains and wheat exports. In total, their exports represent 13% of total global consumption of those grains.
With North American grain production recovering this Fall from the drought reduced harvest last year, the total global export business is going to be strong. U.S. exports of major grains, wheat, corn, soybeans, etc., will rise in the 2013-14 crop year by more than 700 million tons, or more than 20%. U.S. agricultural exports in 2013 are estimated by the USDA to have been a record $140 billion. In the 2014 crop year U.S. Agri-Exports are expected to slip only slightly to $135 billion due to lower grain prices.
Australia, a major Agri-Food exporter, also expects to have another good year in the Agri-Food export market. Exports will fuel Australian farm income to a record A$49 billion in 2013-14 per Australia's ABARES, the country's agricultural and economics bureau(thecropsite.com, 19 August). Exports are projected at A$37.2 billion, just slightly below the previous year.
Simply between the U.S. and Australia about $180 billion will change hands in the global Agri-Food export market. And to that value can be added that collected by the other five major exporting nations. That leads to a question: How do investors tap into this massive cash machine?
Argentina and Brazil together will export more than 90 million tons of corn and soybeans this coming year. Together they export 40% of their corn and soybean production. Those exports represent more than 40% of the total world export trade in those two grains.
In all these cases a mechanism is needed to move the grains from the producers to the consumers. The second part of this global process is to move the money from the consuming nations to the producing farmers. That set of tasks is accomplished by what we refer to as Agri-Collectors (AgriMoney, 2013).
Agri-Collectors are those companies that acquire the Agri-Commodities from farmers on a global basis, from Canada to Brazil and the Ukraine. From the consuming nations they collect money, which is then sent back to the producers. Through these companies flows the grains and other foods stuffs of the world and the money that is paid for them. Given their unique positions in the global Agri-Food world, they should be a part of all investment portfolios.
Potentially enhancing their long-term performance is the reality that the universe of companies in the public domain is limited. Archer Daniels Midland (ADM), particularly strong in North America, now controls a major Australian grain exporter with a transportation advantage to China. Bunge (BG) is a major player in grain exports from Argentina and Brazil. In the Asian sector, Wilmar International (OTCPK:WLMIY) is the connection between palm oil producers and the major consumers, China and India, which must import a significant portion of their vegetable oil needs.
These companies with unique positions in the global agricultural export markets should be in investor portfolios. As discussed above, 2014 is to be a year of strong grain volumes and revenues in the global Agri-Food export market. Prosperity for these companies is derived from strong volumes. Strong prices generally accrue to the producer. Beyond the next year, investors can rely on a near certainty, an unusual condition in this world. People all around the world are going to prefer eating to not eating every year.
These stocks have previously been recommended to subscribers of Agri-Food Value View.