3 Stocks and 1 ETF To Play China's Demand for Agricultural Commodities

Excerpt from Raymond James strategist Jeffrey Saut's latest essay:

Well it’s national pork month (October), yet not the kind of “pork” served up inside the D.C. beltway that proposes $400 million “bridges to nowhere,” but rather the pork (read: pigs) that Smithfield Foods (SFD) serves up to the world. Enter China, the world’s largest pork- consuming country, which ironically is celebrating the year of the pig! Ironic because of the vicious outbreak of Blue Ear disease that has wiped out 20% of China’s pig population, causing pork prices to jump some 70% over the past year. Because of the porcine respiratory syndrome, last month Smithfield agreed to supply 60 million pounds of pork to China, which could lead to additional Chinese purchases. Note that it takes almost two years to raise a pig for slaughter to sate the burgeoning pork demand created as Chinese per capita incomes rise and the desire for more pork increases geometrically.

Interestingly, pigs eat corn, as well as other grains, which is one of the reasons we have been steadfastly bullish on agriculture for years...

Indeed, for years we have espoused the merits of investing for the long-term in agriculture and ALL things related to it. Two of our better “calls” have been Bunge (BG) back in 2001 at under $20 per share, as well as Caterpillar (CAT) in November 2002 when it possessed a 4%+ dividend yield and also changed hands under $20...

Still, we don’t think the Ag theme has run its course. Unsurprisingly, China is importing nearly 13% of all the soybeans grown in the U.S. to feed its livestock and continues to “throw” cash at its farmers in an effort to produce more meat for Chinese consumption. And that cash flow has caused the U.S. Agriculture Department to estimate that net farm incomes in this country will soar by nearly 50% this year with an attendant increase in demand for farm equipment, irrigation equipment, fertilizer, seeds, etc. Ladies and gentlemen, this theme should have long legs as 3 billion new entrants (read: people) join the world’s economy and per capita incomes rise. While some of the “easy money” for investors has already been made from our recommendations, we think there is still room for additional investment returns. Clearly, there are numerous individual agricultural stocks for participants’ consideration (see recommendations from our previous missives and/or our research correspondents), but a broader-based approach for most investors is likely the best strategy. To this point, we embrace investment vehicles like MK Vectors Agribusiness ETF (MOO), as well as other open-end and closed-end investment funds.