How to Profit From Soaring Food Demand

Food prices are soaring. Here are some tips for investors who want to invest in agriculture. Anyone who has been to a supermarket lately knows that food prices are spiraling higher. In the coffee aisle, prices are up 30% in the last couple of months alone, and chocolate, beef and chicken also have grown more costly. Sugar is at a 30-year high. Wheat prices have shot up 47%, thanks to droughts in Russia and floods in Queensland, Australia. And corn keeps surging, not only because of its use as food and feed, but also because of its role as part of the burgeoning biofuels industry.

Food-price inflation doesn't always get much attention in the U.S. because food accounts for such a small part of our overall household budgets, usually 10% to 15%. But those prices play a far bigger role elsewhere, making up as much as 90% of household spending in Africa and 30% in China and other developing countries.

The U.N.'s Food and Agriculture Organization this week reported that world food prices have reached a record high, surpassing the food crisis of 2007. In December, the FAO's food basket of meat, sugar, diary and cereals was up 4% from November.

But you can also find some profit in this pain: When a commodity's price climbs, it generally signals an investment opportunity. That holds true for food as well.

Why Ag May Is Poised for Growth

John Stephenson, an asset-management expert who has written a new guide called The Little Book of Commodity Investing, expects agricultural commodities to grow in value because "the world has more people in it, and people are changing their diets as they become more affluent and now eat more protein." That means high demand for meat and for animal feed such as corn.

Want to get in on the booming agricultural market? One way to invest in it is to buy futures on the Chicago Board of Trade. But for small investors, futures often can be confusing and difficult to trade. Instead, Stephenson recommends other methods, including investing in exchange-traded funds. Unlike ETFs for gold and silver, agricultural ETFs don't actually own the commodity, but instead buy futures contracts, saving investors the trouble.

Two of the most popular agricultural ETFs include the Agribusiness ETF (MOO), which is based on the DAXglobal agribusiness index and has grown 50% in the last six months, and the PowerShares DB Agriculture Fund (DBA), which is based on the Deutsche Bank Liquid Commodity Index Diversified Agriculture Excess Return and is up 32% from six months ago. Both ETFs invest in a basket of agricultural commodities, which can shift quickly, making it difficult for investors to know how much they're betting on corn, for example, or soybeans at any specific time.

For more specific commodity investments, Stephenson recommends ETF Securities, a U.K.-based firm. It has specific ETFs for coffee (COFF), corn (CORN), leanhogs (HOGS), soybeans (SOYB), sugar (SUGA) and wheat (WEAT), all of which are traded on the London Stock Exchange.

Be Careful With Your Eggs

Stephenson points out that all commodity ETFs face the risk of contango -- when the futures price is higher than the spot price. If the ETF buys wheat futures for March delivery for $8 a bushel when the spot price is just $6.50 and the spot price doesn't rise, it will end up selling the wheat for $6.50 at the end of 90 days and still have to buy a new three-month future for $8.

"That could be a loss, or at least not the gain you were expecting," Stephenson says. "That's why I tend to say invest a little in financially backed ETFs, but don't put all your eggs in that basket."

His second-favorite food commodity investment is fertilizer stocks, such as Mosaic (MOS), Potash (POT) and Agrium (AGU). "They trade alongside commodities so that you get the upside you'd expect from rising corn prices, and fertilized food is the only logical way to meet the world's demand for food," Stephenson says. "Generally speaking, a farmer has to fertilize every year, so there is a constant revenue stream."

Two other possible agricultural strategies include investments in farm-equipment manufacturers like Deere (DE) and Case New Holland (CNH). However, Stephenson believes these stocks are less compelling because farmers don't buy new tractors every year, even in good times.

Another possible play would be to invest in manufacturers of genetically modified seeds such as Monsanto (MON), whose shares rose 3% Thursday after reporting sharply higher orders for spring planting.

But beware: The rising cost of raw materials often affects food companies' share prices. Companies with strong brands, like Kraft (KFT) and Heinz (HNZ), have the ability to raise retail prices and will likely fare best. And meat processors like Tyson Foods (TSN) are often hurt when food prices rise.

If Stephenson is right about increasing protein consumption in the developing world, a long-term food play might be to invest in diet stocks. After all, he notes, Nestle (NSRGY) bought diet firm Jenny Craig last year.

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Doug Anderson

You can't eat gold, food is going to be the most valuable supply you can have in hard times. Supply lines are drying up, and being taken over by the Gov. It would be a good idea to have a supply of food if everything goes bad. heres a link where you can get food that not only tastes good but has a 15 yr. storage life. http://www.aaafoods.myefoods.com You can get it delivered anywhere in the US in less than a week for now.
Better to have and not need, than to need and not have.

Continue reading on Examiner.com Terror threats rising as FEMA orders $1 Billion in dehydrated food - National Finance Examiner | Examiner.com http://www.examiner.com/finance-examiner-in-national/terror-threats-rising-as-fema-orders-1-billion-dehydrated-food?page=1#ixzz1aDRORZ2z

October 08 2011 at 3:46 PM Report abuse rate up rate down Reply
Lawrence

So let the world endure near starvation as long as you vultures can make a buck ?...The eye of the needle...The eye of the needle..

January 10 2011 at 8:31 AM Report abuse rate up rate down Reply
Dave &/or Trisha

Hey, this all can't be true. Even though the price of oil products is way up again, the price of clothing is going through the roof and now food, our wonderful government assures us that there is no inflation. Ergo, no raises for military retirees and social security beneficiaries. Yeah, right!

January 09 2011 at 10:54 PM Report abuse rate up rate down Reply
vallontina

Tell me why conditions in Russia and Australia should effect the price of food here in the US? Shouldn't the wheat we consume here come from wheat farms here??
America should take care of their own first before exporting. If we grow a product here, we shouldn't be importing that same product at a premium - unless there is a substantial shortage. I feel that the government gives too little respect to our farmers. We really need to support our local farms.

January 09 2011 at 4:21 PM Report abuse +2 rate up rate down Reply
2 replies to vallontina's comment
alfredschrader

Vallontina- We live in a global economy. This is why it is so important that we tore down the wall in Berlin, and that we help Korea to do the same. (I'm a farmer thanks for your respect). We all need to work together. Wheat, rice, corn, etc. are all commodities. Well, what does that mean ? A commodity is a product that you can sell all that you produce meaning that there is not enough of it to go around. If the quantity of a commodity becomes shorter in supply, the price goes up because the wealthiest consumers will pay a premium for it. If it becomes abundant, the price goes down. When a commodity producer sells their commodity be it oil, corn, whatever, who is buying it never enters the picture, only that they have the money to pay for it. For example, if you were selling 100,000 bushels of corn for $350,000.00 would you care who paid for it ? When commodity prices soar, people begin to find substitutes for and
others line-up to start producing it to get in on the goldrush. Eventually it returns to a balance.

Things can change overnight when new technology makes it easier or faster to produce a commodity. This technology is usually very valuable which is why I'm developing a new ag system right now that turns useless scrub land into very fertile farm land....Alfred-

January 09 2011 at 5:28 PM Report abuse rate up rate down Reply
gardeningatnite

Do not support corporate farming! Agribusiness doesn't care where and from whom they make their profits!....There are tens of thousands of small, independent farmers (hopefully organic) that you should give and only give your support for!.....Buy American and buy local and organic goods!

January 09 2011 at 6:20 PM Report abuse rate up rate down Reply
Patty

And food is going to get higher..........per analysts.............

January 09 2011 at 3:08 PM Report abuse +2 rate up rate down Reply
Hello

Thats what I love about this country. you can say whatever you want no matter how crazy it may be and it's ok. If the "poor" do the same thing that the "rich" do,then they would be"rich" also.Another thing you can do in America that you can't get in many other countrys.Also remember the poorest person in America is richer than most anyone found elsewhere in this world.Thats why everyone (well most everyone) wants to come here.

January 09 2011 at 2:48 PM Report abuse +1 rate up rate down Reply
gardeningatnite

"How to Profit From Soaring Food Demand"........I apologize, I just find that topic to be so amusing!.... A 'how-to' on cashing in on drought and famine = death!

January 09 2011 at 1:27 PM Report abuse +1 rate up rate down Reply
1 reply to gardeningatnite's comment
gardeningatnite

P.S. Did I say 'amusing'???.......I am so sorry.....I meant 'sickening'!

January 09 2011 at 1:31 PM Report abuse +1 rate up rate down Reply
charprctr

hey people there are no prices increases.......the cost of living is not going up ..............listen to your leaders.................only thing is they dont live in the real world.. they live in fantasy of their own..........the poor are getting poorer and the rich are getting richer by the hour...............social security is a thing of the past ..i think we wont ever get an increase. to bad they wont either.. i hope it wont be around when they retire...........

January 09 2011 at 12:37 PM Report abuse +1 rate up rate down Reply
alfredschrader

Monsanto says I can't re-plant the seed from corn I grew using Monsanto seed. This is why I don't use Monsanto. I'm working right now on developing tiny wasps that replace the bees that are almost gone. I could make millions selling the wasps, but instead I give a few away to anyone that needs them so they can breed their own. If Monsanto sells seeds to a farmer & then the farmer doesn't need more seeds, they should sell something that the farmer does need like improved fertilizers, robotic harvesters, or whatever....Alfred-

January 09 2011 at 11:30 AM Report abuse +2 rate up rate down Reply
pete

Just don't profit too much, or the same people who wrote, edited, and published this article will be on you like ugly on an ape for being "greedy." Bunch of effin media hypocrites!

January 09 2011 at 11:22 AM Report abuse +4 rate up rate down Reply