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It's the Perfect Time to Tap Into Agriculture's Growth
By: Paul Tracy
Editor, StreetAuthority Market Advisor
Learn more about the Market Advisor (click here)
Published: January 5, 2009

Focused on investing in firms involved in the global agriculture industry PowerShares Global Agriculture (Nasdaq: PAGG, $17.69) is an ETF with exposure to companies involved in grain processing, fertilizer production and genetically modified seeds.

There are two major trends underway that are behind rapidly rising global food demand: increased meat consumption in the developing world and the biofuels industry.

In 1961 your average Chinese consumer only ate about 3.81 kilograms of meat per year. But that figure has steadily risen over the years; as of 2003, annual per-capita meat consumption stood at just under 55 kilograms in China. That represents a doubling in meat consumption since the early 1990s alone.

According to the Worldwatch Institute, a human on a grain-intensive diet will consume roughly 180 to 200 kilograms of grain annually to maintain a healthy weight. The same consumer on a meat-intensive diet will consume 700 to 800 kilograms of grain indirectly; grain is fed to livestock that's eventually slaughtered for meat. That means even a small increase in demand for meat in China spells a massive increase in global grain demand.

And in the developed world, another key trend is driving growth in consumption of agricultural products -- fast-growing demand for biofuels. In the U.S., the federal government passed a law late in 2007 requiring the nation use some 36 billion gallons of biofuels by 2022. The main biofuel in the U.S. today is corn-based ethanol. While the new law requires increased use of ethanol from on non-agricultural commodities, corn-based ethanol is likely to remain dominant for at least the next five to seven years.

And biofuels aren't just a U.S. phenomenon. The EU also has mandates for increasing consumption of ethanol and biodiesel, a diesel-like fuel made from vegetable oils. Even some developing countries, such as Brazil, have laws on the books encouraging greater use and development of fuels produced from agricultural commodities.

Primary holdings in PAGG include genetically modified (GM) seed producer Monsanto (NYSE: MON). The company makes GM seeds designed to exhibit certain favorable characteristics known as traits. Traits include crops resistant to pests or disease; in the future, Monsanto plans to introduce crops than can withstand drought or other adverse environmental conditions. Monsanto's seeds offer farmers higher yields -- they can produce more crops per acre farmed.

Other major holdings include fertilizer producers Potash Corporation (NYSE: POT) and Mosaic (NYSE: MOS). One way to increase crop production is to fertilize more heavily. Farmers in developing markets such as Brazil and China have traditionally applied less fertilizer to their crops than in developed markets. But higher agricultural prices are improving farmers' incomes and allowing them to pay up for fertilizer to boost yields. As farmers in developing countries ramp up their fertilizer use more in line with the developed world, it implies an explosion in demand for potash and other key fertilizers.

Rising global demand for agricultural commodities should continue to benefit agriculture-focused stocks such as those in PAGG.


Paul Tracy
Editor
StreetAuthority Market Advisor

About the Market Advisor

This monthly investment newsletter is a highly diversified service -- the Market Advisor covers income investments, undervalued stocks, aggressive growth plays, international investments, exchange-traded funds (ETFs), and just about everything else in between. As a result, you're certain to find a variety of investing ideas that are well suited for your portfolio. (Learn More)

About Paul Tracy

Paul Tracy co-founded StreetAuthority.com and became the firm's Chief Investment Strategist in 2001. He also co-founded TopStockAnalysts.com in 2006. Prior to that he spent several years as Managing Editor at a multi-million dollar financial publishing firm with over 150,000 subscribers. In addition to his role as managing editor and lead financial writer, he was also responsible for equity research and managing a team of seasoned professional financial writers, researchers and market commentators.

Paul's previous experience includes a position at Robert W. Baird & Co.'s full-service brokerage operations as well as economic research work on a Money and Banking project funded by the National Bureau of Economic Research. He has also spent time doing outside consulting and research for the University of Virginia, has appeared as a guest expert on several prominent financial radio shows, and has been a featured speaker at various investment conferences across the U.S.

Paul graduated with a B.S. in Finance and Management from the McIntire School of Commerce at the University of Virginia.

To learn more about Paul Tracy's premium investing newsletter -- the Market Advisor -- please visit this link.


 

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