Thanksgiving is a time for family, friends and feasting. The centerpiece of most holiday banquets is the good ole’ domesticated turkey, which, unfortunately for them, is bred simply to be eaten.
Unlike wild turkeys, which most of us do not eat, the domestic turkey is not only another product of Americans’ cultural need for the bird over the holidays… but a symbol of how far the “food” business has come.
Consider this:
- In 2010, more than 242 million turkeys were raised with an average weight of 28 lbs per bird or 6 billion pounds of turkey processed.
- In 1970, only 105 million birds were raised with an average weight of 17 pounds or 1.5 billion pounds processed.
- That’s a production increase of 300%!
Can you say “bird-flation”?
Perhaps the Duke brothers and Billy Ray Valentine were on to something when they were buying pork bellies in the 1983 comedy Trading Places.
In the movie, the Dukes made a fortune trading and brokering everything from pork bellies to coffee to orange juice. In the ’80s, trading commodities was an expensive and often risky proposition.
Today, advances in technology coupled with much lower commission rates and research have narrowed the playing field for most retail investors like you. As a result, commodities are an area you SHOULD NOT ignore.
The fact is, the world’s population is growing and the amount of farmland that is available for both crops and livestock is finite and shrinking as population centers spread out.
Food as a Real Investment
Here in Dallas, just north of me in the towns of Frisco and Prosper, we are seeing the removal of record amounts of farmland to make way for homes, pools, roads, schools, shopping malls, etc. The rate of growth in many areas is remarkable, turning farmland into concrete and finely manicured lawns.
According to a study at Yale, more than an acre of farmland is lost per minute in the United States. The less farmland we have for our food needs, the more we may have to pay or import, both of which could drive our prices higher. By the way, the bulk of America’s farmland is just on the fringes of large urban areas.
Aside from urban sprawl, there is the inflation factor. As the U.S. dollar weakens, dollar-denominated commodities like corn, wheat and meats tend to rise in value, and if the population here continues to grow and farmland continues to decrease and we have to import more, you can bet on food prices going higher.
Keep in mind that you can’t just keep crops and livestock anywhere. Weather and soil conditions dictate where certain things can be kept and grown. That drives farmland prices higher and the more it costs for land, the more farmers may need to charge for their crops and livestock. In the Midwest alone, the average price of farmland was up more than 10% in the past year; this is after two previous years of double-digit gains.
(By the way, investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Sara Nunnally simplify the market with our easy-to-understand articles.)
Global Farmland Issues
World leaders at the G-8 meeting discussed the issue of “land grabbing” or “neocolonialism,” where rich countries were gobbling up land in poor countries to grow food for their citizens.
This is happening all over the world as tastes change and populations demand more food and more proteins, which are more expensive and require much more from the land.
As the world tries to wean itself from its “crude oil addiction,” biofuels have been getting much attention. The ultimate goal is to produce many biofuels from the byproducts of grain production, but the reality is that bioalcohols, which are produced by fermenting corn, wheat, potatoes, sugar beets, etc., still use the sugars or starches of the crop itself, not the cellulose fibers.
Biodiesel — the most common biofuel in Europe — uses animal fats and vegetable oils, which also puts demand on crop production.
So How Do You Play It?
I say keep it simple and look at buying a few key companies and ETFs. Here are three of my favorites…
Mosaic (MOS:NYSE) — Mosaic produces phosphate and potash nutrients to feed crops and increase yield. Its products are used around the world.
Archer Daniels Midland (ADM:NYSE) — Archer Daniels Midland can be considered the “supermarket to the world.” They have their hands in many different parts of global agribusiness. They handle everything from transporting to storing to processing and even merchandising global food products.
PowerShares DB Agriculture Fund (DBA:NYSE) — DBA is an ETF that tracks an underlying index that is composed of actual futures contracts with a focus on the “softs” — corn, soybeans, wheat, sugar, coffee, etc. This fund does carry a 1% annual fee and expense charge, so it might be advisable to sell out-of-the-money call options to help pay for those fees.
P.S. Farmers in this country have had an increasingly hard time in the past few years.
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Other Related Topics: Agriculture Industry , Commodities , Farming Sector , G-8 , Inflation , Jared Levy , Smart Investing Daily
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