Profiting from a hungry, growing world

Posted on: March 3, 2011 in: Uncategorized with 0 comments

Nine Billion. That’s how many people will need to eat in 2050: 2 billion more than today. For the PDF, click here. It is huge but the growth rate is only 0.6% a year, considerably slower than the pace we have grown at. So why are food prices sky-rocketing? Most likely, it is a short-term mismatch between supply and demand – much like in 2007-08. And like then, prices will return to earth, likely sooner rather than later. Prices on soft commodities are only now flirting with the highs seen in mid-08. A short-term punt on commodity prices at this time could end badly. But with food demand rising steadily, firms providing agri-inputs – fertilizers, hi-tech seeds, tractors – are a better long-term investment.
Two agri-business ETFs stand to benefit: the Claymore Global Agri ETF, COW and the Van Eck Agri ETF, MOO. (Yes, really) Both hold companies like Potash Corp, Monsanto and John Deere, as well as emerging market names like Wilmar, a big Asian palm oil producer, and Brasil Foods, the chicken grower that Warren Buffett invested in last week.
Of the two, MOO is more diversified (44 vs 35 holdings) and has 12x more AUM. COW has a higher dividend (1% vs 0.6%) and trades in C$ (though unhedged). Both have dipped recently and will dip further when food prices fall. But as a long-term holding, either is a solid bet on our ravenous appetite.

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