Agriculture and Agribusiness: Investing on Need

by: Marc Courtenay

Many investment legends, from Jim Rogers to George Soros, are beginning to speak up about the tremendous food shortages that tragically are developing all around the world.

Exploding populations, water shortages and weather extremes are all playing a part. Governments on every continent are prepared to throw large amounts of money toward the food-growing industry, and this should be good for agribusiness.

The shortages of specific types of food, from corn to sugar to meats, will lend itself to rising prices as demand begins to outstrip supply. This is why legends like Rogers also like silver and gold, and especially silver since its price is further away from it's all-time high. Higher food prices usually contributes to higher gold and silver prices.

That's just one reason that pretty soon investors might be buying more of a silver ETF like SIVR, or scooping up a silver royalty company shares like Silver Wheaton (NYSE:SLW) or a silver producer like Silver Standard Resources (NASDAQ:SSRI). Goldcorp (NYSE:GG) recently purchased junior silver producer Canplats, which will help increase its annual silver output.

Because of food shortages and water shortages, Rogers likes Agriculture commodities more then he likes silver, and he likes silver more than gold or copper. PowerShares has an ETF called the DB Agriculture fund (NYSEARCA:DBA) that tracks the price and performance of the Deutsche Bank Liquid Commodity Index - Optimum Yield Agriculture Excess Return.
There's been a lot of talk about boosting the U.S. debt limit lately, and the figure being bandied about is $1.8 trillion dollars. Now it appears that they're considering a much smaller short-term boost of roughly $200 to $300 billion just to prevent the U.S. from going into default over the next couple of months. Here's the very brief Reuters report on that.
Market Vectors Agribusiness (NYSEARCA:MOO), with companies like Archer Daniels Midland (NYSE:ADM), Deere (NYSE:DE), Potash (NYSE:POT), Syngenta (NYSE:SYT), Mosaic (NYSE:MOS) and PowerShares DB Agriculture should benefit from the return of higher food prices. Growing populations and falling production create the perfect storm when it comes to spurring food price increases.
According to Bloomberg, this is the exact scenario we are facing heading into the beginning of 2010. If expectations are met, then agribusiness and futures backed agriculture ETFs will prove to be strong plays. While the outlook for investors appears optimistic, the growing price of food threatens to sharply increase the number of hungry mouths across the globe.

Currently, the U.N. believes that over 1 billion individuals face hunger. In November, global food prices jumped 7%, according to the United Nations Food and Agriculture Organization. This is the largest jump since February 2008. The equity-backed Market Vectors Agribusiness ETF is probably the best way for investors to benefit from the growth in agribusiness which will receive billions to stave off world hunger.

For the record: DBA and MOO look like they may be due for a correction and we might want to plan on buying after that correction unfolds.

Disclosure: Long SIVR, SLW