The Seedier Your Portfolio, the Better

The summer of 2012 will be remembered for the scorching drought that parched farms in the Midwest, along with the host of smoky conflagrations it helped to ignite in the West and Northwest. The latter included those in Idaho, my home state. Beyond those tragedies, there's a relationship between the land in southwestern Idaho, including Boise, and the wilting crops in Iowa, Indiana, Kansas, and other agricultural hotbeds.

In a fertile valley
An area now known as Treasure Valley begins just across the border in Vale, Oregon, and extends east to the Idaho capital. It contains the confluence of the Payette, Boise, Weiser, Malheur, Owyhee, and Burt rivers, all of which drain into the Snake River. Perhaps more importantly from the perspective of the world's crop-growing efforts, the valley constitutes the locus of the seed bioengineering efforts of fully 40 companies, including Monsanto (NYSE: MON  ) , DuPont (NYSE: DD  ) , and Switzerland's Syngenta AG (NYSE: SYT  ) .

The valley presents ideal growing and crop experimentation conditions, including an arid climate and winters with temperatures that typically dip low enough to eliminate pesky bugs that would otherwise hinder the bioengineering process. The result is a vital role for the area in improving the strains of seeds for corn, watermelons, tomatoes, onions, cabbage, broccoli, and a host of other fruits and vegetables.

Seed needs
A key result is a contribution to the world's ability to meet a projected 75% increase in the demand for seeds during the current decade. The resulting seed strains developed in the valley ultimately find their way to about 100 countries.

But this is far more than a tour of a sliver of Idaho. Rather, it's a look at a key slice of life wherein mankind likely is moving toward costly and dangerous food supply-and-demand imbalances. As John Taylor, an executive in the agricultural unit of U.S. Trust, noted recently, "We are in a tough place right now for food."

As such, while many Fools recognize that I monitor carefully the supply, demand, and geopolitics of oil and gas, it's at least as important to keep tabs on those factors that will affect the quality and availability of food for a rapidly growing global population. As Syngenta has pointed out:

  • The world's population is anticipated to expand from 7 billion today to more than 9 billion by 2050.
  • Cereal demand is expected to grow by more than 40% in just the dozen years leading up to 2025.
  • Worldwide demand for meat is forecast to expand by fully 50% by 2025. Among the many results will be a substantial increase in the demand for grain production.
  • Mankind has now turned the corner to the point where more than half of the world's inhabitants are living in cities. By 2050, about 3 billion additional people are expected to reside in urban areas, leading to a severe reduction in the agricultural workforce.
  • Water scarcity is easily the most important limiting factor in the growth of crop production. Today, the fresh water required for agriculture constitutes only about 1% of the earth's total water supply.

A rising demand for food
Given these -- and a myriad of other -- factors involved in the global expansion of agricultural yield, I'm becoming increasingly convinced that monitoring food and agriculture companies is vital to the compilation of a well-balanced investment portfolio. For instance, once a diversified producer of a variety of chemicals, Monsanto now derives nearly three-fourths of its revenues from the sale of various types of agricultural seeds and genomics. The remainder is related to other agricultural products, such as herbicides.

While DuPont continues to produce a variety of chemicals, there's no doubt that it's following Monsanto's path toward a concentration on agriculture. In its most recent quarter, 43% of the company's pre-tax operating income was generated by its agricultural segment.

Back in 1999 DuPont shelled out $7.7 billion to acquire Pioneer Hi-Bred International, an Iowa biotechnology company. Pioneer has since developed a strain of hybrid corn that is capable of a 7% higher yield than other strains during drought conditions.

Syngenta, which is about 70% the size of both DuPont and Monsanto, operates three agriculture-related units: crop protection, seeds, and business development. Its seed unit produces about 200 product lines and 6,800 varieties of proprietary genetics. These include vegetables, flowers, corn, soybeans, sugar beets, and sunflowers.

The Foolish bottom line
Beyond this seed-producing trio, there are numerous other companies playing key roles in dealing with our progressively tightening food balance. For instance, the same conditions that are ratcheting up the importance of seed yield are rendering fertilizers and sophisticated equipment steadily more important to the entire crop production process. For that reason alone, I actively monitor such other agriculture-related companies as Mosaic (NYSE: MOS  ) , a major fertilizer products producer, and Deere & Co. (NYSE: DE  ) , the king of the farm and ranch equipment makers.

For my money, all of the companies named above warrant attention. However, if forced to declare the current pick of the litter, I'm inclined to designate Monsanto, primarily for its leadership in the all-important development of bioengineered seeds. I suggest that Fools with an interest in agriculture add the company to My Watchlist.

Fool contributor David Lee Smith doesn't have financial interests in any of the companies named in this article. Motley Fool newsletter services have recommended creating a modified stock repair against synthetic long position in Monsanto. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 24, 2012, at 4:50 PM, funfundvierzig wrote:

    In Face of Soaring Corn Prices, DuPont Bosses Cling To FOOD-to-FUEL & FABRICS Business Model

    Readers,

    Governor Jack Markell of Delaware and other state governors have recently asked for waivers of ethanol mandates for motor fuel. In the meantime, DuPont Chieftess Ellen Kullman and her senior executives continue to embrace their flawed FOOD-to-FUEL & FABRICS paradigm. Using perfectly good food, such as corn as an industrial raw material to manufacture costly corn carpets and corn clothes and corn airplane deicers and corn-based plastics exposes DuPont to extensive censure from consumers and their political leaders. A PR disaster is in the making with the ensuing outcry around the globe over the destruction of food.

    Another fallout: One of the reasons, Ms. Kullman cited for over-paying $7 billion for Danisco, a maker of industrial enzymes and food additives was the biofuel market. But it looks like the ethanol market will be cratered as a consequence of a massive drought in the U. S. and skyrocketing corn and bean and wheat prices. OOPS! Look for some sales erosion for DuPont's industrial biofuel enzymes.

    We are waiting to see the sanitisation of FOOD-to-FUEL & FABRICS by the DuPont PR pros in the face of the global food crisis. How are they possibly going to play it? To top it off, DuPont with its partner, oil giant BP are cranking up a huge plant in Hull England which will gobble up over 1 million tonnes of wheat yearly to manufacture into costly bio-butanol.

    Merely the perspective of one individual investor with positions in MON, SYT, and DD...funfun..

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