There are few options in the stock market that rely on demographic reality as heavily as agriculture stocks and ETFs. The growing populations in developing nations like China and India are pushing up the demand and prices of basic foods like corn and wheat at alarming rates. A middle class demanding more meat, means more feed and higher prices. China’s middle class is growing fastest and with their large population, they are especially influential in affecting change on the pricing of commodities. The sky rocketing price of pecans, only a microcosm of the agricultural economy and with far fewer practical uses and applications has shot up immensely since the Chinese have taken interest in the nut. The prices of corn and wheat have done the same, but it’s not too late to make money in agricultural stocks and ETFs at least according to the most recent speculation that would see China turning overseas to feed its growing population. Speculators anticipate a Chinese buying spree for U.S. corn that could potentially reshape current grain markets and drive up global food prices.
In the past week alone, China purchased a massive 540,000 metric tons of U.S. corn for August delivery, according to the U.S. Department of agriculture. This exceeded agency expectations for the entire year, sparking discussion of the weight China has in restructuring global food costs. Corn prices instantly went higher on the final days of the week, while remaining well-priced after a 3-week slump.
The latest information has led traders to an understanding that China is preparing to purchase millions of metric tons of U.S. corn, leaving USDA forecasts in the dust and continuing to tighten U.S. grain supplies in spite of the record-large corn crop. If the speculation is correct then now is the time to invest and the companies ranging from corn ETFs like CORN and the fertilizer companies like Potash, that help increase yields in order to meet demand.
Potash Corporation of Saskatchewan (POT)
Potash, an integrated fertilizer and feed products company, has also seen tremendous year-over year growth alongside the heightened demand for both harvest yield and beef. For the first quarter of the year Potash reported impressive earnings of $0.84 per share or $732 million, 71 percent above the $0.49 per share or $444 million earned in the same period last year. Impoved pricing rices for the nutrients in Potash resulted in record first-quarter gross margin of $1.1 billion That said, those number could look small in comparison to the rising Chinese driven demand for corn which could see farmers snatching up Potash in order to meet the new pressure on their yields.
LSB Industries (LXU)
A premier manufacturer of agricultural chemicals and climate control pumps and valves, LSB Industries recorded record earnings for Q1. The company is expected to continue to profit from farmers desire to amplify current yields, similarly to Potash. Seeking Alpha reported sales climbing 142 percent for the second quarter but shares experienced some losses, making it an attractive buy at current levels. The company has improved their internal expenses and helped to improve net-income from a year-earlier period meaning LSB has huge potential to make even more money from the shifting circumstances and potentially massive Chinese orders.
For investors looking for a more direct correlation, Teucrium Corn (CORN), which holds corn futures, may be the best option. Teurcrium has ascended quickly since June of 2010, adding 30 percent in its first months, but it fell back slightly as many worried the rise in corn prices wasn’t as immediate or dramatic and some were making it out to be. With the prices that are well below their 52-week highs but nowhere near lows, now could be a solid time to consider an investment, especially as more details regarding the possibility of a Chinese export reveal themselves.
Grain is another area of interest for investors looking to benefit from the growing global middle class. The trend toward meat based diets, especially in China, on the surface would seem to negatively affect grain but instead, the opposite is true. Every single kilo of animal protein requires roughly 10 kilos of plant protein. The implications of what that means for futures of barley and maize are tremendous. Investors looking to go to the bank of this development should look into iPath DJ-UBS Grains TR Sub-Idx ETN (JJG), which tracks grain futures.