China shops at U.S. farms
“Global food prices are rising to dangerous levels and threaten tens of millions of poor people around the world,” said World Bank President Robert Zoellick. About 44 million people in emerging markets have fallen into poverty because of rising food prices, according to the World Bank.
The World Bank’s Global Food Price Index jumped 15% between October 2010 and the end of January.
Over the last year, global food prices have increased by 29% partially due to weather shocks such as the Russian drought and floods in China. The real culprit is just old fashioned booming demand as the growing middle class in emerging markets, like India and China, simply are eating more and better.
In China, for example, the consumer price index rose 4.9% in January from a year earlier. That’s a pretty high inflation rate by itself, but it was especially disturbing to hear that food prices have jumped by 10.3% in the last year.
Many important foods were up even more: grain up by 15%; sugar by 20%; eggs by 20%; cooking oil up 22%; and fresh fruit surged 34%.
China has taken some aggressive steps to curb its inflation.
It just raised the amount of money banks must keep in reserve. The People’s Bank of China raised the reserve requirement ratio by 50 basis points to 19.5%, which is a record high and the second time this year it has boosted the reserve requirement.
Plus, the PBOC has raised key interest rates three times in the last four months.
Supply Shortages Are A Big Concern
Rising food prices are a big problem, but supply shortages are an even bigger concern in countries, such as China, that consume more food than they produce.
FACT: China became the top importer of U.S. agriculture goods in 2010 for the first time in history.
Yup, China passed Canada, who imported $16.9 billion of U.S. food in 2010, by buying $17.5 billion worth of agricultural goods.
Agriculture is big business in the United States. All totaled, the United States sold $115.8 billion in agricultural products worldwide last year.
One of the U.S.’s largest agricultural exports is soybeans, and China is buying just about all we can produce. In 2000, China bought 19% of our soybean exports but that number soared to 58% in 2010.
It may surprise you because you may think China uses those soybeans to make soy sauce and tofu, but those soybeans are being used primarily as feed for livestock. China is consuming more meat than ever, and it needs to feed its livestock with U.S. soybeans and grains.
And those soybean exports are going to grow. The U.S. Department of Agriculture predicts that by 2020 demand for soybeans in China will increase to 88.3 metric tons a year, up from 50.3 metric tons last year — that’s a 75% increase.
China may have taken the U.S. manufacturing industry for shoes, clothes, electronics, furniture and clothes, but it cannot steal our agricultural industry, so the United States will remain a dominant global food player.
China will overtake the United States to become the world’s biggest grocery market next year.
There are several ways you can profit from the rising demand and prices of foods.
Last week, I wrote about three fertilizer companies, and my good friend Larry Edelson wrote about two U.S. food producers in his February 7 column to consider.
4 ETFS To Consider
If you’re more of an ETF investor, here are four to consider:
* PowerShares DB Agriculture (NYSE:DBA) is more of a pure food commodity play as it invests in a basket of agricultural futures such as corn, soybeans, sugar, cattle, cocoa, coffee, cotton, lean hogs and wheat.
* Market Vectors Agribusiness (NYSE:MOO) invests in agricultural commodity producers such as Deere & Company (NYSE:DE), Potash (NYSE:POT) and Archer Daniels Midland (NYSE:ADM).
* PowerShares Dynamic Food & Beverage (NYSE:PBJ) invests in companies that distribute food to consumers such as Starbucks (NYSE:SBUX), Yum! Brands (NYSE:YUM), General Mills (NYSE:GIS), HJ Heinz (NYSE:HNZ) and Kroger (NYSE:KR).
* Consumer Staples Select Sector SPDR (NYSE:XLP) invests in companies such as Wal-Mart (NYSE:WMT), Kraft Foods (NYSE:KFT), Kellogg (NYSE:K) and Sara Lee (NYSE:SLE).
As you can see, there are lots of ways to invest in food. That doesn’t mean you should rush out and buy any of those stocks or ETFs tomorrow.
As always, you need to do your own due diligence, and given the big moves that many of these stocks have recently made, you may be better off waiting for them to go ‘on sale’ before jumping on board.
Make no mistake, however, the long-term prospects for food companies is bright.
Written By Tony Sagami From Uncommon Wisdom Daily
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