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Thursday February 15, 2007
Growth in global agriculture
Here, the editor of The Energy Strategist, looks at the best global plays on the biofuel trend, as well as an exchange traded fund – Powershares Deutsche Bank Agricultural Fund (AMEX: DBA), which offers a diversified play on the biofeuls sector, as well as additional bullish trends in agriculture. Here's his review. “Among individual stocks in the biofuels sector, investors can look at Monsanto (NYSE: MTC), Potash Corp. (NYSE: POT), Mosaic (NYSE: MOS) and Syngenta (NYSE: SYT), which all trade in the U.S., or MP Evens and AngloEastern, which trade in London, as well as Sipef, which trades in Belgium. 
”My basic outlook for all of these stocks is that pullbacks of 10% to 15% are possible from time to time, but I still I regard such selloffs as outstanding buying opportunities. In addition to these selections, I’m adding PowerShares Deutsche Bank Agricultural Fund to my biofuel coverage. “The DB Agricultural Fund doesn't hold any stocks at all. This fund instead buys commodity futures contracts, a market where the majority of stock investors have little or no exposure. The fund holds a quarter of its assets in corn futures, a quarter in wheat, a quarter in soybeans and a final quarter in sugar. “These are the most-important traded agricultural commodities. Therefore, the fund is a good play on the overall bull market in agricultural commodities I see developing in coming years. ”There are several drivers for the agriculture boom. Two of the most important are rising consumption in emerging markets such as Asia and rising demand for biofuels. To the first point, the simple fact is that as countries grow wealthier, consumers eat more; even more important, consumers eat more meat. ”For example, in China, meat consumption is growing very rapidly. While animal products accounted for barely 5% of daily consumption as recently as 1970, by 2003, meat was already more than 20% of the diet. “As a rule of thumb, it takes 8 to 10 pounds of grain and feed to produce 1 pound of meat. rule of thumb. As meat consumption rises, the effect on grain and feed demand rises at an even faster pace. “With literally billions of consumers in the emerging markets now starting to demand more processed, meat-based foods, there’s an every expanding wall of demand for products like soybeans, corn and wheat. These same crops are being used to produce biofuels. ”Meanwhile, ethanol production is soaring globally. And with generous government subsidies and technological improvements, production of these fuels will rise regardless of oil and gas prices. “The powerful wave of demand for food upgrading coupled with rising biofuels consumption is behind the powerful bull market in agricultural commodities. The PowerShares Deutsche Bank Agricultural Fund is a solid overall play on this trend.” |
News Flash
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"One of my favorite long-term growth themes is biofuels,” says Elliott Gue, who believes this sector is “locked in a longer-term secular bull market.”