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
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Virginia, has appeared as a guest expert on several prominent financial radio
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Paul graduated with a B.S. in Finance and Management from the McIntire School
of Commerce at the University of Virginia.
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