The growth in the standard of living and population of emerging markets has started a big food fight. Last week the largest supplier of potash, a fertilizer used to increase crop yield, was targeted by a hostile takeover. This has sent fertilizer stocks higher. In fact, the whole agriculture space has benefited as the fight for food is on! Here’s a quick look at why this is happening and how to play it with ETFs.
Emerging countries like China and India need to dramatically ramp up their ability to produce food — i.e. grow crops — to feed the masses and lessen foreign dependance. Unfortunately for them, they face a steep challenge as they have large populations which are growing quickly. On top of this, portions of these populations are starting to enjoy a higher standard of living due to countrywide economic growth. With more cash in their pockets, consumers are changing their eating habits to include more protein and processed foods. This puts even more pressure on the food supply as food like meat is not very efficient to produce. For example, estimates are that it takes about 13 pounds of grain to produce one pound of beef and three pounds of grain for one pound of chicken. Not the best agricultural math for a country struggling to produce a basic level of food!
In response to this pressure, fertilizer has become a valuable commodity for its ability to increase the yield on crops. Fertilizer like potash, an impure form of potassium carbonate, supercharges crops and is in high demand. So the fight is now officially on for control of fertilizer companies as it is less costly to buy an existing supplier with proven reserves than to start a new one and begin exploration.
To gain focused investment exposure to the food fight, there are two ETFs that I like. My favorite is the largest agriculture ETF, MOO, sponsored by Van Eck. MOO has the fertilizer names in the news as well as companies involved in agriculture equipment and operations. It is global in nature and tracks an index that sported a 2.3% dividend yield, according to the fund’s second quarter fact card. Click here for complete info on MOO.
The other ETF to take a look at, CRBA, also focuses on the agriculture sector. CRBA, from Jefferies, is global in nature but more concentrated than MOO in fertilizer names, which amount to about 25% of this portfolio. It is a purer way to play the current potash/fertilizer craze right now and that’s why I’m highlighting it. Be warned that this is a dramatically smaller ETF in size and is lightly traded, so it is important to be cautious when placing orders. For more information, but a lot less than what is typically provided by ETF sponsors, check out the fund’s website here.