Extreme Weather, Food Shortages and Three ETFs to Consider

Tony Sagami

Don’t the weather and natural disasters seem more extreme to you lately? The world has seen what seems like a wave of floods, fires, tornados, earthquakes, tsunamis and droughts.

Tornados: The tornado tragedy in Joplin, Missouri, was heartbreaking, but there have been many more. The average number of tornados over a three-year span in the United States is 1,376.

Americans, however, have suffered through 1,425 tornados over the last 36 months. Heck, April witnessed a record 600 tornados, and meteorologists are calling 2011 “The Year of the Tornado.”

Cities that have been hit this year include some of the usual locations, such as Dallas, Oklahoma City, Minneapolis, and St. Louis. But twisters have also struck unusual places, such as Philadelphia, Raleigh, and even Springfield, Mass.

Floods: It is tragic but not unusual for the Mississippi River to flood, but floods are breaking out all around North America, including parts of Utah, Montreal, Nebraska, North Dakota, Manitoba and Montana.

How bad is the flooding this year? The Federal Emergency Management Agency typically collects more than $3 billion in premiums annually but expects to end this year in the red.

This may surprise you, but even Pakistan is suffering from unprecedented flooding this year.

Last year wasn’t any better. Remember the huge flooding in Australia, and Pakistan got an unprecedented flood.

Wildfires: Summer hasn’t even arrived, but wildfires are already popping up all around the country. Firefighters in eastern and southeastern Arizona are battling two huge wildfires that have charred almost 200 square miles of brush and tinder. Texas, Colorado, Georgia, New Mexico, and even Alaska are battling smaller but dangerous wildfires.

In northern Alberta, 115 fires whipped by 60 mph winds have set 74,000 acres ablaze.

Last year was no picnic either. Russia was hammered with wildfires last summer that severely reduced the global supply of wheat.

Drought: Texas, Oklahoma and New Mexico are being ravaged by droughts. A whopping 50.6% of Texas has been declared to be in drought stage due to a record low spring rainfall. Only 1-1/2 to 1-3/4 inches of rain fell across the state, which makes the March-May spring period the driest on record.

The National Weather Service has classified South Florida as D4 drought stage, or the “exceptional drought” stage.

This is the first time South Florida has been placed in the “exceptional drought” category in the 80 years since the National Weather Service started tracking droughts.

The Amazon is in its second drought in four years. Typically, the Amazon has a once-in-a-century drought.

Droughts are not just a North American problem. China is suffering from one of the worst droughts in its long history.

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The Yangtze River basin, which is Asia’s biggest river and supports 400 million Chinese, is filled each year by monsoon rains that flood the region each spring. But the rains did not come as expected this year, causing the worst drought in 50 years. The Yangtze River has only received half of its usual rainfall. Almost every province in the region has reported severe drought conditions.

  • Jiangxi Province’s Poyang Lake, China’s largest freshwater lake, has shrunk by two-thirds and is the smallest size since satellite recording began. Another huge Yangtze-generated freshwater lake, Hong Lake, has gone dry.
  • More than 2 million acres of farmland don’t have enough water to grow crops.
  • Shanghai, which is located at the mouth of the Yangtze, has seen its drinking water compromised from salt because the altitude of Yangtze is below sea level.

The consequences of the drought include water shortages, a drop in electricity production, crop losses, and transportation disruptions.

Drinking water: Chinese officials have declared more than 1,300 lakes to be “dead,” which means they are out of use for irrigation and drinking supply. More than 1 million people and 380,000 livestock are short of drinking water, according to the Office of State Flood Control and Drought Relief Headquarters.

Transportation: Water levels are so low in some parts of the Yangtze and its tributaries that thousands of boats have been stranded, forcing the authorities to halt shipping along many parts of the river.

Electricity shortages: The world’s second-largest steel producer Shanghai Baosteel has received a government notice that its electricity used for production will be restricted between June and September. Many manufacturers in Zhejiang Province have been forced to take two days of production off every week.

“If the drought continues, dams in the province will run out of water to generate electricity,” said Hu Xiaofei of Anhui Electric Power. The company estimates that 2011 will have the most severe power shortfall since 2004.

Food crops: But the drought’s biggest impact will be felt by China’s farmers. Without water crops won’t grow and will only harvest a fraction of normal production. Areas affected are among China’s major producers of rice and wheat, so a poor harvest will translate into higher prices.

Food shortages have plagued the world since the dawn of man. Even today a large number of the world’s population goes to bed hungry each night. Josette Sheeran, the executive director of the United Nations World Food Programme, calls it the “silent tsunami.”

What’s more disturbing is the problem is getting worse. The Worldwatch Institute estimates that 1.02 billion people were “undernourished” in 2009, a 12% increase over the previous year. ONE OUT OF EVERY SIX PEOPLE ON EARTH IS UNDERNOURISHED.

I don’t know what it is like to go to sleep on an empty stomach, but I can imagine how desperate I would be to feed my children if we ever faced a food emergency.

Food prices have jumped to an all-time high, according to the Food and Agriculture Organization of the United Nations (FAO). In fact, the FAO food index, which is comprised of 55 various food products, is higher today than it was when food riots broke out in 2008.

“We are entering a danger territory. There is still room for prices to go up much higher,” said Abdolreza Abbassian, the chief economist at the FAO.

Feeding that growing number of mouths is already big business, but it is going to get much bigger as the demand for better diets and more protein increases. I believe that you’ve only seen the early stages of an agricultural boom, and that it will be one of the most profitable sectors you can invest in.

There are three exchange traded funds to consider. One such fund is the Global X Farming ETF (BARN), which launched last week and has some special appeal to me because of its heavy Asian weighting. BARN gives investors a solid choice because it only has 31% of its assets in U.S. stocks.

Here’s a geographical breakdown of the fund followed by two other agriculture ETFs to consider:

  • United States, 31.64%
  • Singapore, 15.06%
  • Malaysia, 12.03%
  • China, 7%
  • United Kingdom, 5.94%
  • Japan, 5.37%
  • Canada, 4.75%
  • Netherlands, 3.35%
  • Brazil, 3.35%

PowerShares DB Agriculture Fund (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 (MOO) invests in agricultural commodity producers such as Deere & Company, Potash and Archer Daniels Midland.

As always, you need to do your homework and decide whether any of these securities are appropriate for your personal situation and financial goals.

Lastly, since timing is everything when it comes to investing, you should wait for these securities to go on sale before jumping in or wait for my buy signal in Asia Stock Alert.

Best wishes,

Tony

P.S. If you are looking for more specific buy/sell recommendations on my favorite Asian stocks, please consider a subscription to my Asia Stock Alert for only $199 a year. I think it may be the best investment you’ll ever make.

Your thoughts on “Extreme Weather, Food Shortages and Three ETFs to Consider”

  1. Dear Tiony,

    An interesting post. But on another matter: you had better contact your subscribers concerning TRE.

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