Seeking Alpha
Long/short equity, tech, banks, oil & gas
Profile| Send Message|
( followers)  

The Gist

Let's not kid ourselves; the world's population is mushrooming exponentially. Simultaneously, a global food shortage of historical proportions is developing due to a myriad of factors.

The Details

The following are six major factors influencing the budding global food crisis.

Arrival Of New Emerging Market Middle Class Improved Diet Demands

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.

Exponential Population Growth Explosion

With exponential population growth and diminishing crop yields driving food prices to all-time highs, the world may be forced to go vegetarian by 2050, scientists said in a recent article on Yahoo.com.

Food Prices Remain High and Volatile

According to a recent report by the World Bank Group's Global Food Crisis Response Program (GFRP), global food prices remain volatile while the world's population recently surpassed seven billion people for the first time last October, according to a recent report in the USA Today.

Unending Tight Global Inventory Levels

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.

Potential for Snowballing Inflation

At the Fed's Jackson Hole meeting, Bernanke may suggest that under current economic circumstances the Federal Reserve may engage in a third round of quantitative easing. What's more, Draghi's solution to the Eurozone's sovereign debt debacle will lead to the ECB's printing presses cranking up. This will facilitate their attempt to paper their way out of the proverbial quicksand, as it were, devaluing the Euro and spurring commodity prices to new heights.

Increasing Weather Volatility Causing Global Crop Yield Deterioration

(click to enlarge)

This is a global issue, not just a U.S. 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. I posit will soon become the number one focus of the world.

A Major Seed Supply Shortage Starting

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.

The Goods

These five agricultural equities stand to benefit greatly from the dynamic global food crisis unfolding. I got behind them at the beginning of the year. In the following sections we will perform a review of the fundamental and technical state of each company to determine if this is the right time to start a position, sell out or avoid it completely. The following table depicts summary statistics and Tuesday's performance for the stocks. The following charts are provided by Finviz.com.

(click to enlarge)

CF Industries Holdings, Inc. (CF)

CF is trading up 44% at $206.80 since the day of my initial recommendation in the beginning of January.

(click to enlarge)

Currently, the company is trading 5% below its 52 week high and has 13% potential upside based on the analysts' mean target price of $234.23 for the company. CF closed Tuesday up slightly for the day.

CF still has some fundamental positives. CF's forward P/E is 8.44. The EPS growth rate is up 38% quarter over quarter. The company trades for 7 times free cash flow, pays a dividend and has a PEG ratio of .74.

Technically, the stock looks good, although is current drifting down from the top of the trend channel. I would wait for a pullback to the 50 day sma at least prior to starting a position.

E. I. du Pont de Nemours and Company (DD)

DD is trading up 12% at $49.80 since the day of my initial recommendation in the beginning of January.

(click to enlarge)

Currently, the company is trading 6% below its 52 week high and has 12% potential upside based on the analysts' mean target price of $55.80 for the company. DD closed Tuesday down slightly for the day.

DD has some fundamental positives. DD's forward P/E is 10.78. The company's net profit margin is 8.53%. The ROE is 31.75%. The company pays a dividend with a yield of 3.45%.

Technically, the stock looks like it is running out of steam. A double top pattern is forming. If the stock breaks below the 50 day sma, watch out below. Avoid this one for now. There are bigger fish to fry.

Monsanto Co. (MON)

Monsanto is trading up 26% at $86.97 since the day of my initial recommendation in the beginning of January.

(click to enlarge)

Currently, the company is trading 3% below its 52 week high and has 9% potential upside based on the analysts' mean target price of $94.50 for the company. Monsanto closed Tuesday up nearly 1% for the day.

Monsanto has some fundamental positives. Monsanto's forward P/E is 20. The company's net profit margin is 16%. The ROE is 17.94%. The company pays a dividend with a yield of 1.72%.

Technically, the stock has been on fire since mid-May. The stock recently pulled back and bounced off the 50 day sma. I like the stock here. Of course always layer in to any position.

The Mosaic Company (MOS)

Mosaic is trading up 13.39% at $56.75 since the day of my initial recommendation in the beginning of January.

(click to enlarge)

Currently, the company is trading 23% below its 52 week high and has 19% potential upside based on the analysts' mean target price of $67.42 for the company. Mosaic closed Tuesday down slightly for the day.

Mosaic has some fundamental positives. Mosaic's forward P/E is 10. The company's net profit margin is 17%. The ROE is 16%. The company pays a dividend with a yield of 1.76%.

Technically, the stock has gone parabolic since the start of June. The stock recently pulled back and is testing support at the 50 day sma. I like the stock here, but wait for it to bounce off the 50 day sma prior to starting a position.

Syngenta AG (SYT)

Syngenta is trading up 21% at $69.29 since the day of my initial recommendation in the beginning of January.

(click to enlarge)

Currently, the company is trading 3% below its 52 week high and has 1% potential upside based on the analysts' mean target price of $68.95 for the company. Syngenta closed Tuesday up slightly for the day.

Syngenta has some fundamental positives. Syngenta's forward P/E is 14. The company's net profit margin is 12%. The ROE is 20%. The company pays a dividend with a yield of 2.49%.

Technically, the stock recently broke out to the upside of a descending triangle pattern. Although the stock is trading near 52 week highs, I see this as confirmation the stock is performing well. It has just been through a major back and fill event and has the steam to pull off another upward thrust. I like the stock here.

The Bottom Line

With an inkling of good news in the headlines out of Europe recently regarding Draghi and the ECB as well as hints the Fed stands ready to take action, I posit these agricultural equities will continue to rally. Having central banks at the ready coupled with the unfolding global food shortage should ensure these stock will continue their upward momentum.

This could be your last chance to pick up these stocks at this level once the daunting task ahead of us regarding the global food shortage becomes evident. You can't reap what you don't sow; now is the time to buy agricultural equities. Nevertheless, this is a long term play. Take your time and look for an ideal entry point.

This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decisions.

Source: 5 Ag Equities With Major Upside And Strong Growth Prospects To Buy: 3 Now, 2 Later