What Do 10 Billion People Mean for Your Investing Strategy?

• Email
• Share
• Print

As I sat the other day at a symposium on investing and agriculture, one thing kept sticking out in my mind: the world population, currently estimated at 6.5 billion people, is expected to reach close to 10 billion people by 2050. That's about a 45% increase -- and that's a whole lot of people. More people means more mouths to feed, more overall consumption, and inevitably, more problems accomplishing those tasks.

The most important real asset
As investors abruptly found out in the financial collapse of the last year, stocks, bonds, and cash can't protect us from the terrible downside of economic collapses. That's where real assets come in. The most important real asset out there is farmland.

Should we all go out and find a ranch?
It would be great if we could, because farmland offers two substantial benefits:

1. It provides another alternative to the traditional stock, bond, and cash asset allocation mix.
2. With money being printed on a global scale like never before, inflation is truly a long-term concern. It's important to figure out what assets have true intrinsic value, and which do not. Farmland offers a great hedge against inflation for that particular reason and because of its scarcity and productive abilities.

In addition, demand for farmland will be increasing for years to come. With 800 million people already hungry or malnourished, we are going to be continually confronted with a large problem in the two main components, land and water, for agricultural production: scarcity in each.

Unfortunately, most of us can't go out and buy a few thousand acres of farmland in Brazil or Bolivia as an investment. We should be investing in agricultural production, but we don't have access to the land. So what can we do?

As the world turns
One solution is to look to the agricultural sector. Grain, one third of which is used to feed livestock, which in turn is used to feed people, is going to see prices increase as demand increases for protein worldwide.

There are two simple ways to place yourself strategically in order to take advantage of the agricultural boom that we will be experiencing over the next half a century.

Instead of worrying about particular grain-related stocks, one way to invest is to seek out an exchange traded fund like Powershares DB Agriculture (NYSE: DBA) or Elements MLCX Grains Index (NYSE: GRU). Doing this offers diversification and lowers stock-specific vulnerability.

The second way to invest is to buy the products that are used for grain production. This means fertilizers or any other chemical used in farming. Many fertilizer stocks have done extraordinarily well in the last five years. PotashCorp (NYSE: POT), Monsanto (NYSE: MON), and Agrium (NYSE: AGU) have produced returns of 312%, 337%, and 196%, respectively, over that time frame.

Those are some of the bigger name companies that have already experienced tremendous gains, but there are definitely smaller companies that are worth looking into. For instance, American Vanguard (NYSE: AVD) produces chemicals and fertilizers for farmland use in the United States. Yongye International (Nasdaq: YONG) manufacturers powder nutrient compounds for use in plant and animal feed used in the agricultural sector in China.

These two companies are micro-caps, so with them comes the usual disclaimers about volatility. However, they are certainly worth looking into.

Whether you find any of these stocks or ETF's interesting, one thing is for sure -- as the population gets larger and the world's potential cropland gets scarcer, increased agricultural production will be at the center of the solution. Start researching agribusiness now and you should find yourself in a great position later.