I'm not an alarmist by nature, but there's no denying we're in a
How else would you explain angry demonstrations in Mexico
protesting exorbitant corn tortilla prices or the fact that
Pakistan called in the military to guard flour mills?
The recent political uprisings in the Middle East can be linked to
. So can rising interest rates in Europe, which are an attempt to
The story is simple to follow.
The world's population is growing by tens of millions each year,
but we have a fixed amount of space for crops. In fact, farmland is
disappearing around the world thanks to urbanization and
large-scale construction projects. That's leading to scarcity...
even with advancements in farming.
In fact, U.S. farms will churn out 13.2 billion bushels of corn
this year, the most ever. But we'll need every ear. Domestic corn
inventories (relative to consumption) are forecast to fall to the
second-thinnest level on record.
It's the same in China, which will produce a record 178 million
tons of corn and still fall short of projected consumption of 181
million tons. So even with bumper crops, global food supplies are
still alarmingly low.
This leaves zero room for error. If there is any supply disruption
(and there always is) or any increase in demand (count on it), then
grain prices will march higher.
Rising population means 75 million new mouths to feed each year. We
also need mountains of grain to feed cows, chickens and other
livestock. By some estimates, it takes seven pounds of grain to
produce one pound of meat.
And rising income has led to a shift in dietary habits from starch
to protein -- in fact, China's annual per-capita meat consumption
has tripled since 1980.
And then there's ethanol, which now swallows 40% of the United
States' corn crop. With millions of acres of farmland diverted to
take advantage, there has been less room to plant other crops.
This means upward pressure on prices for wheat and soybeans, as
well. This is not a temporary phenomenon. We can barely cover usage
from domestic food processors, ethanol refiners and meat producers
-- let alone satisfy demand from overseas.
Nobody has a large surplus to sell -- and this can only push prices
in one direction. There's only one answer to this massive issue of
scarcity... squeeze more bushels out of each acre of land. That's
where fertilizer comes in.
Fertilizers are not glamorous products. But they are indispensable,
for up to 60% of the world's food production. That's a big reason
why investment returns in this sector have been spectacular -- with
a cumulative gain of 689% in the past decade.
In the chart below, you can see the performance of
of fertilizer company
-- which I recently added to my $100,000 real-money
Scarcity & Real Wealth
Despite a strong bullish outlook in its sector, the shares have
sunk in the past few months.
But we've seen this before, exactly a year ago. Beginning in early
2010, the stock started turning lower... until it bottomed in July.
From there, shares more than doubled.
Now, the exact same thing could be shaping up for 2011.
Of course, simply because a chart looks appealing doesn't
you should invest based on it alone. That's where the fundamentals
behind the company look special.
Mosaic is the world's top producer of phosphorus-based fertilizer
products such as diammonium phosphate (DAP). With annual production
capacity of 10 million tons, the company controls 13% of the global
market and ships more than its next two largest competitors
The primary raw ingredients to make DAP are ammonia, sulfur and
phosphate rock. Other manufacturers have to buy their rock from
third parties, at prices that can be volatile.
But Mosaic has an internal supply of phosphate rock. This in-house
source cuts out the middleman, boosts
margins and gives the company an edge over the competition. And
trust me, this is just part of the company's appeal.
Action to Take -->
for corn and other grains will fluctuate (if for no other reason
than the shuffling of speculative
assets). But by and large, I believe high food prices are here to
And it's a safe bet that a large chunk of that cash earned by
farmers from higher prices will be spent on fertilizer for next
year's harvest. This is good news for the possibility of history
repeating itself in shares of Mosaic.
-- Nathan Slaughter
P.S. -- If you are interested in other ways to profit from
supply shortages and demand hikes, please check out my latest
premium advisory, Scarcity & Real Wealth. To learn more about
Scarcity & Real Wealth and a world of supply and demand
investment plays, please watch my free webcast now…
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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