Sunday, February 17, 2008

Feeding the world is a growth business. The global population is expanding by more than 70 million mouths a year, and the system that supplies the food is racing to keep pace. You see the strain in the mere 1.3 percent growth in grain production each year during the past 20 years. To keep up with global population trends, grain production needs to reach 3.3 percent annual growth, according to Credit Suisse Group.

Ned Schmidt, a longtime investment adviser and money manager, has been watching the tightening supply-demand conditions. In his 11-month-old newsletter, the Agri-Food Value View, he points out the logical conclusion: Higher prices and higher profitability are in store for companies in the food chain. The agri-food companies his newsletter watches -- not only those that sell food products through retail outlets but also those "close to the dirt," as he says, including heavy farm equipment -- have gained 43 percent from March 2007 through Friday, compared with a 5.4 percent decline in the Standard & Poor's 500-stock index over the same period.

"Does that mean I am good?" Schmidt wrote. "No, it means that a bull cycle in agri-food stocks has started and I am riding it."

This agri-food trend is not a short-term play, he said. Rather it is a long-term structural shift driven in large part by rising populations in Asia and by surging demand for renewable fuels such as corn-based ethanol. Also behind the trend are the increasing affluence of emerging countries, widening dietary tastes and greater longevity for the mouths that need to be fed.

-- Steven E. Levingston