The Rising Influence of Rising Affluence

[DewDiligence]

These comments on the ag element of The Global Demographic Tailwind by Felix Zulauf during the annual Barron’s roundtable echo those of prior posts on this board. MON and DE are my two favorite plays on this theme. (See #msg-54541113, #msg-57647058, and #msg-53059927 for related stories.)

http://online.barrons.com/article/SB50001424052970204853904576090250370348320.html

In the U.S., annual consumption of meat is 130 kilograms (286 pounds) per capita. In the European Union, it is about 100 kilos. In China it is 55 kilos, and it was 39 kilos 10 years ago. In India it is at only seven kilos, so there is a long way to go [a significant portion of India is vegetarin, however]. In 1980, Taiwan was at a development stage similar to China's today. Since then, Taiwanese meat consumption per capita has doubled from 43 kilos to more than 90 kilos. By 2030, China's meat consumption could be 85 to 90 kilos.

It takes about six kilos of grain to produce one kilo of beef. [The ratio for chicken and other forms of meat is at least 2x.]. On the supply side, available land is diminishing. We can't get water to some land. We are diverting other land to production for biofuels [e.g. 40% of the US corn crop is used to make ethanol].

The situation is compounded by La Niña, a weather phenomenon that cools the Pacific, disrupting harvests. Combine that with constant volcanic eruptions in Eastern Russia, which affect the Arctic, leading to more flooding in Southeast Asia and Australia, which is occurring now. It will lead to stronger monsoons in India and droughts in Latin America, Russia and the Ukraine, and potentially the Northern U.S. We can expect below-average harvests in the Southern Hemisphere, and potentially in the Northern. All these factors support the continuation of the bull cycle in agricultural commodities.