The summer droughts that ravaged corn, soybean and wheat crops in the U.S. Midwest are back in the news.
They are also on my radar as a global investment concept that may soon become ripe for the picking, as agriculture prices look to be heading even higher … and not just for the United States.
The USDA’s latest numbers show that U.S. corn supply is at a nine-year low. Corn stockpiles in the U.S., the world’s top grower and exporter, were 17% smaller on Dec. 1 than a year earlier … and at their lowest level since 2002 … after the drought reduced production and animal-feed demand remained strong.
All of this is coming together to produce a perfect storm of higher prices. And the time to buy may be coming sooner rather than later.
However, the best way to make money isn’t through playing the grains themselves, but instead the broader business of feeding the world, which I’ll explain in just a few moments. I’ll also give you a "growing" stock you should be watching right now.
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First, let’s look at some other USDA forecast factoids that add fuel to rising food prices.
* Lower Crop Yields: The USDA predicts that the world output in the crop year that began Oct. 1 will be 852.3 million tons, which is lower than the 883.54 million tons produced in the previous year.
* Changes in Consumption: Demand will dip slightly in the coming year. Global consumption is forecast to fall for the first time since 1996 to 868.11 million tons, from 879.24 million last year.
* Shrinking Supplies: But this will not be enough to keep from cutting into supplies. Worldwide inventories at the end of the marketing year will be 116 million tons, down from 117.61 million predicted a month ago, on increased demand for livestock feed. The year-earlier figure was 131.79 million.
For global investors, this positively translates into potential opportunities in food stocks, especially in the Americas. After all, the U.S. is a top — and, in some cases, the top — producer and exporter of these agricultural crops.
But I’m not looking at a direct play on these commodities. Rather, agribusiness is where the big bucks are at.
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One of my stealth plays here is a stock with a fat price tag, Seaboard Corp. (SEB), which is currently trading at more than $2,500 per share.
Seaboard is a diversified international agribusiness and transportation company that primarily produces and processes domestic pork and ships cargo. The company also merchandises commodities, mills flour and feed, farms produce, produces sugar, and generates electric power overseas.
The global pork sector is experiencing one of its most-turbulent years in history, with dramatically contrasting price movements among pork-producing regions.
Yet, overall global hog prices are likely to recover in 2013 — which will begin when the current supply boost from feed price-induced herd liquidation fades.
But with a $2,500 price tag, it’s still too high a trading ticket for an individual investor. So I’m going to suggest you start tracking the following this stock that benefits from both rising food costs and organic natural demand growth throughout the Americas.
Grupo Bimbo, S.A.B. de C.V. (GRBMF) — Grupo Bimbo produces and sells bakery products. The company produces breads, cookies, pies, pastries, sweet rolls, tortillas, tostadas and snacks. It also makes appetizers, sweets, chocolates, jams and other confections. Grupo Bimbo markets its products throughout the Americas and Europe.
In addition to its low share price in the $2.50 neighborhood, it’s attractive here for several other reasons:
1) It’s the largest bread company in the world!
2) It’s posting double-digit revenue gains in Mexico, its largest market, and improving its margins in recently acquired Sara Lee operations. The company anticipates $150 million in integration synergies within the next 2 years. And …
3) It’s 120% more profitable than its international peers based on return-on-equity. The company is solidly generating an easy $1 billion in operating income that it’s using to pay down debt and make more acquisitions.
And for the future, it still has huge opportunities for more growth in places like Brazil and Argentina. These two markets are still relatively small, representing about 15% of Bimbo’s sales.
While GRBMF sells at a small premium valuation to its peers, the stock may warrant a higher value if things materialize as the USDA predicts.
The emerging global consumer is just part of a tidal wave of mega-trends set to play out in 2013. You can gain instant access to my latest research report on the top four mega-trends that can power your portfolio for the next year and beyond, simply by clicking here now.