Let's not kid ourselves; the world's population is exploding exponentially simultaneously as a global food shortage of historical proportions develops. I have family members who are farmers with several thousands of acres in Nebraska and North Carolina who simply can't keep up with demand. The stealth agriculture boom is about to become devastatingly apparent. With exponential population growth and diminishing crop yields driving food prices to all time highs, mark my words, these agriculture equities will skyrocket in value.
Depreciating value and poor returns for differing assets coupled with rapidly growing demand for grains used for biofuels and food has driven farmland prices in Q3 2011 to record highs. This boom in farmland values is predictable and many are speculating a bubble is developing leading to a massive bust. The issue is bubbles are based on a false premise, this one is terrifyingly real.
I posit the inflection point leading from boom to bust is years away if it ever occurs. Twain summed it up: "Buy land - they're not making it anymore."
This is a global issue, the United Kingdom saw an average 12% increase in farmland prices with land appreciating to well above £10,000/acre. Argentina and Brazil's principal farmland prices are as high as those of the US Corn Belt. Food production and crop yields are not keeping pace with demand.
There have been several boom and bust cycles in the agricultural industry, but never in the history of the world has the demand been so high and supply been so low. This conundrum has caused rampant famine, food shortages, outright wars and I posit will soon become the number one focus of the world.
My picks to play the coming agricultural super cycle are as follows: Agrium Inc. (NYSE:AGU), The Mosaic Company (NYSE:MOS), Deere & Company (NYSE:DE), Monsanto Co. (NYSE:MON), DuPont (NYSE:DD), CF Industries (NYSE:CF) and Syngenta AG (SYT).
These seven agricultural equities stand to benefit greatly from the dynamic global food crisis giving rise to a major upswing in the value of these names. Please review the following major agricultural stock catalysts followed by company specific catalysts regarding these buying opportunities followed by a final conclusion.
Major Macro Agriculture Stock Catalysts
- Food Prices Remain High and Volatile
- Exponential Population Growth Explosion
- Unending Tight Global Inventory Levels
- Potential for Snowballing Inflation
- Arrival Of New Emerging Market Middle Class Improved Diet Demands
- A Major Seed Supply Shortage Starting
- Increasing Weather Volatility Causing Global Crop Yield Deterioration
Deere & Company is now trading near even, over the last year, despite earnings growth of more than 50% and revenue growth greater than 25% year-over-year.
For the 2012 tillage season, John Deere offers three new 2600 Series Disks and one new vertical tillage tool designed to provide everything from more muscle for penetrating, chopping and mixing soil and crop residue in a single pass to creating a uniform seedbed. The beefier new 2600 Series tillage lineup includes the 2625 Disk, 2623 Disk, 2620 Disk and 2623VT (Vertical Tillage).
Agrium Inc. recently announced its Board of Directors has approved a one million ton brownfield potash capacity expansion at its Vanscoy potash facility in Saskatchewan, Canada.
The expansion is expected to increase annual production capacity by approximately 50 percent, bringing total annual nameplate capacity to three million tons. Capital expenditure for the project is expected to be approximately $1,500 per ton. The majority of the project construction is expected to take place in 2012 and 2013, with completion projected by the second half of 2014.
Agrium President & CEO Mike Wilson said:
Today's announcement is a great step forward in the execution of Agrium's strategic objectives, helping to meet an ever growing global demand for potash, while providing significant economic benefits to the people of Saskatchewan.
The Mosaic Company reported second quarter fiscal 2012 net earnings of $624 million, compared to $1.0 billion in the prior year quarter. Second quarter fiscal 2011 included a $570 million after-tax gain, $1.27 per share, from the sale of the Fosfertil business. Excluding this gain from the prior year period, net earnings were up 37 percent year-over-year. Earnings per diluted share were $1.40 in the quarter compared to $2.29 in the quarter last year, or $1.02 excluding the gain from the sale of Fosfertil last year. Earnings per diluted share included $0.08 per share in foreign currency transaction gains in the 2012 quarter. Mosaic's net sales in the second quarter of fiscal 2012 were $3.0 billion, a 13 percent increase from $2.7 billion in the same period last year, driven by improved pricing, partially offset by lower volumes.
Jim Prokopanko, President and Chief Executive Officer of Mosaic said:
Our excellent results demonstrate the strength of underlying agricultural fundamentals combined with effective execution by our businesses. While we expect third quarter results to decline due to near-term macroeconomic uncertainty and cautious distributor purchasing behavior, we remain confident of the strong long-term demand prospects for our products. In this environment, we continue to focus on generating value by executing our strategy.
Monsanto Company delivered above-estimate results for the first quarter of its fiscal year 2012 and pointed to the high end of its previously reported earnings per share guidance for the year on the strength of its seed business. The company also previewed a strong U.S. order book and announced 14 phase advancements across its breeding, biotechnology, and chemistry and agronomic research and development platforms, representing a record number of advancements for its annual pipeline update.
DuPont and NexSteppe have entered into a collaboration to develop advanced feedstocks for biofuels, biopower and biobased products. The collaboration will focus on the development of new sweet sorghum and high biomass sorghum hybrids which will create additional feedstock options for these rapidly evolving industries.
John Bedbrook, vice president for DuPont Agricultural Biotechnology said:
We're using science-based innovation and collaboration to develop scalable, sustainable feedstock options for the biobased industries. Collaborations like this one with NexSteppe will provide new opportunities for growers to address the rising demand for secure, environmentally sustainable and affordable alternatives to fossil fuels.
CF Industries is a global leader in fertilizer manufacturing and distribution, the second largest nitrogen fertilizer producer in the world and the third largest phosphate fertilizer producer among public companies. CF Industries owns and operates world-scale nitrogen and phosphate plants and serves agricultural and industrial customers through its best-in-class distribution system.
In 2010, CF Industries acquired Terra Industries Inc. Following this acquisition, CF Industries is positioned as a nitrogen bellwether in the global fertilizer industry and the premier nitrogen and phosphate fertilizer manufacturer in North America.
Syngenta AG, an agribusiness company, engages in the discovery, development, manufacture, and marketing of a range of products designed to enhance crop yields and food quality worldwide. It operates in three segments: Crop Protection, Seeds, and Business Development. The Crop Protection segment offers herbicides primarily for corn, cereals, soybean, and rice; fungicides for corn, cereals, fruits, grapes, rice, soybean, and vegetables; insecticides for fruits, vegetables, and field crops; seed care for corn, soybean, cereals, and cotton; and professional products, such as products for public health, and turf and ornamentals.
According to a recent report by the World Bank Group's Global Food Crisis Response Program (OTCPK:GFRP) global food prices remain volatile while the world's population recently surpassed seven billion people for the first time this October according to a recent report in the USA Today.
Depressed yields of major agricultural crops have led to tight inventory levels. Corn stockpiles are at 30 years lows. We have low stocks of corn not only in the U.S., but the world as well. A majority of the corn supply in the U.S. goes to ethanol while China has emerged as a significant buyer in 2011 for the first time. The South American soybean market is tight. The recent dry conditions in Brazil could exacerbate the issue further.
The FOMC minutes for the two-day November meeting suggest that under current economic circumstances the Federal Reserve may engage in a third round of quantitative easing. What's more, the solution to the eurozone's sovereign debt issues have led to the euro printing presses cranking up, allowing for them to paper their way out of the problem, devaluing currencies and spurring commodity prices to new heights.
The newly burgeoning middle classes of India and China desire enhanced diets. A consequence of economic growth is the rise of a new middle class. Standards of living increase dictating improvements in diets. Shifts from staple foods such as rice or wheat to animal protein coupled with fruits and vegetables occur. The OECD (Organization for Economic Cooperation and Development) looked at the future evolution of the respective shares of consumption by the middle class, between different regions of the world. Their study was for consumption goods at large. Please review this amazing graph.
A shortage of seeds threatens what many expect to be the biggest planting of corn in the U.S., the world's largest producer of corn. Early forecasts have been calling for up to 95 million acres to be sown with corn this spring, a 3.4% increase from 2011. The problem could mean turmoil for the corn market. In the previous year, the U.S. crop was smaller than expected; powering a momentous march in corn prices to a record $8 a bushel.
In spite of all these developments, the sector has been in a downward spiral during the second half of 2011 leaving some names down as much as fifty percent. According to the chartist, the current correction is healthy technically. We saw an inkling of positivity in the headlines out of Europe last week regarding the eurozone sovereign debt crisis as well as positive news regarding the U.S. economic situation. Taking these factors into account, I posit agricultural equities will soon soar from their current shares prices based on macroeconomic, sector and company specific catalysts.
This could be your last chance to pick up these stocks at this level once the world realizes the daunting task ahead of us regarding the global food shortage. You can't reap what you don't sow; now is the time to buy these agricultural equities.
Nonetheless, this is only the first step in finding winners for your portfolio. Don't take my word for it, do your own homework. Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.