Buy the Farm: Investing in Agriculture
A "Wall of Money" is about to Hit this Country...
Everybody's gotta eat, right?
But did you know the world chews, slurps, and chows their way through two billion tons of food a year? In fact, the average American alone devours nearly a full ton.
By 2050, we'll have another two billion people on the planet to feed — and we'll have to grow it on the same amount of land we have now...
Which means production in global agriculture will need to almost double in order to keep up.
It's an alarming thought, to be sure.
But any investor worth his salt knows 'crisis' is just another word for opportunity.
And you'd better believe there are some big time investors ready to cash in on this opportunity...
BlackRock founder Larry Fink is super-bullish on agriculture. He manages a massive $3.8 trillion in assets, making him one of the top fund managers in the world.
Fink has predicted agriculture will even outpace energy investments for the next decade: "Go long agriculture and water and go to the beach," he told investors in 2011. "Put those investments in the bottom drawer for 10 years. It's unlike anything else we have in the world."
Fink's got a friend in legendary investor Jim Rogers, who is more bullish on agriculture then anything else in his portfolio...
Rogers has thrown his weight behind several agricultural funds bearing his name.
“Agriculture is going to be one of the most exciting parts of the world economy for the next 20 to 30 years. You should learn to drive a tractor,” he told one charmed television host.
Rogers regularly crows about impending inflation, and agriculture assets can indeed hedge against rising prices. His bet is that as global population expands, coupled with extreme weather, food prices will go through the roof and the farmers and producers will be the ones reaping the wealth that they've literally sown.
Investment in agriculture is a two-birds-with-one-stone-type play in that respect: You are hedged against inflation in your portfolio, while profiting from inevitable food price spikes in the long term.
Combine inflation fears with the growing middle classes in developing countries, and we're going to see a global race to feed the masses. The long and short of it is we are going to see an uptick in agriculture production — great news for savvy investors with a long-term investing plan.
Now, whether or not you want to drive a tractor is your business...
Our business is investing in companies that will do the dirty work while we collect the profits. And as far as profits go, both of those investors are hunting for them abroad. In fact, they're heading down under.
If the stars align properly, Australia is currently poised for an onslaught of investors to hit their shores.
At the Global Food Forum in Melbourne last week, BlackRock's World Agriculture Fund portfolio manager Desmond Cheung revealed there is a "wall of money" just waiting to be invested in Australia. It's simply a matter of when and where it will be deployed.
There are several reasons for this...
Australia's proximity to China is perhaps its prime asset; and some speculate that Australia could become the “food bowl for Asia.”
Currently Australia feeds around 60 million Chinese with their exports. With the right federal cooperation, that number could double.
Australian finance spokesman Andrew Robb identified 10 to 17 million hectares of fertile land in North Australia that could be opened up, adding: “The Chinese have an extremely high regards for the quality of our services... Australia could become the high quality, high gross margin food bowl for Asia.”
U.S. companies have also targeted Australia. As the seasons there are counter-cyclical to those in North America, this allows U.S. companies to maximize production year-round.
We've already seen evidence of that this week as U.S. agriculture giant Archer Daniels Midland (NYSE: ADM) acquired Graincorp (ASX: GNC), Australia's largest crop handler and last available publicly-traded grain company.
“ADM and GrainCorp have complementary geographies with little overlap and highly compatible cultures,” Chief Executive Officer Patricia Woertz said in a statement. “The addition of GrainCorp to our global network would fit our strategy and help to further connect Australia’s growers with growing global demand for crops and food, particularly in Asia and the Middle East.”
Archer Daniels Midland has positioned itself to cash in if and when Australia becomes Asia's pantry...
The company grows and harvests cotton, corn, wheat, sorghum, and many other crops. It also breeds, grows, and trades beef cattle under Asian-friendly brands like Master Kobe, Takumi Wagyu, and Kobe Cuisine. With Australian beef sales to China predicted to jump more than eightfold this year, Australian Agricultural Company is poised for major growth.
Agriculture may be a volatile market in the short term...
But as any good farmer knows, you sow your seeds now and reap the harvest later.
Jimmy Mengel for Outsider Club
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