An ETF for Growing Appetites
With global demand for food rising, companies that provide solutions to help farmers improve crop yields could continue to see strong growth.
Global food consumption is growing. By 2050 the world's population is projected to reach 9 billion, up from 7 billion today. Yet, because diets are improving and an increasing portion of the harvest will be converted into biofuel, agricultural output will likely need to double by 2050 in order to meet demand. Farmers will need to improve crop yields in order to meet this demand because most of the world's arable land is already in use. While advances in technology will likely make this challenge more manageable, companies on the cutting edge of the agriculture industry already provide solutions to help farmers improve their yields. The demographic shifts over the next few decades provide a sustainable tailwind that should drive demand for their products.
Despite its silly ticker, Market Vectors Agribusiness ETF (MOO) offers a serious way for investors to address these concerns. It provides global exposure to the agriculture industry by investing in companies that sell agricultural equipment, chemicals, and seeds, such as Monsanto (MON), Potash Corporation of Saskatchewan (POT), and Deere (DE). Agriculture commodity prices have a significant impact on the performance of most agriculture businesses because their customers' income and demand for inputs, such as tractors and fertilizer, is tied to grain prices. Yet, commodity prices do not tell the whole story. For instance, a drought can increase the price of corn but decrease the size of the harvest, which may reduce farmers' incomes and their demand for equipment and chemicals. Consequently, the fund's performance may diverge from grain prices. Although weather can have an unpredictable impact on the supply and prices of agriculture commodities in the short-run, the long-run economics of the agriculture industry are compelling. This fund is a suitable satellite holding for investors who want to profit from growth in global food consumption and are willing to ride out wild fluctuations in commodity prices that can erase value with little warning. Investors who are looking for direct exposure to agriculture commodity prices should consider PowerShares DB Agriculture (DBA), which holds commodity futures contracts.
Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.