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Land is a finite resource, and when you consider the fact that the global population recently hit 7 billion people, you can begin to form an investment case for the agriculture industry. Populations are booming across the world, particularly in the emerging markets, where life expectancies are rising and there are millions of new entrants into the middle class. This means the world will face an unprecedented challenge over the next several decades to meet food demand. Here's why this will result in extremely profitable futures for Mosaic (NYSE: MOS ) , Deere & Company (NYSE: DE ) , and Monsanto (NYSE: MON ) .
Extremely favorable economics for agriculture
According to Mosaic, the global population is only expected to keep growing. It expects the world's population to hit 9 billion by 2050. Surely, that will mean massive demand for food, which presents an additional challenge for the agriculture industry. There's only so much land available for food production, which means an incredible strain on food producers to meet this demand. Consider that Mosaic believes farmers will have to grow as much food over the next 50 years as they have over the full course of recorded human history.
It goes without saying that crops need nutrients, which is how Mosaic makes its money. Its two main operating segments, phosphates and potash, represent key nutrients to the agriculture industry. This provides Mosaic management with great confidence in its company's future, despite near-term pressures.
In fact, after releasing its most recent quarterly results, President and CEO Jim Prokopanko recently had this to say about the future of his company: "The long-term positive crop outlook for crop nutrient demand has not changed; high commodity prices are driving record farm returns and making our products more affordable than ever before. These strong fundamentals are expected to drive near record global phosphate and potash shipments in calendar 2013."
Emerging markets are key for future growth
Both Deere and Monsanto are committed to focusing on emerging market growth, and for good reason. Geographies such as Asia and South America are growing much faster than more mature markets, and will see huge food demand going forward due to their rising populations.
Deere just wrapped up its fiscal year, during which it completed seven new factories in Brazil, Russia, India, and China. The company feels this additional production capacity is essential to expanding its global customer base. Deere's focus on emerging markets led Chairman and CEO Samuel Allen to state "John Deere's plans for helping meet the world's need for food, shelter and infrastructure are firmly on track. We remain confident in the company's direction and its ability to serve a population growing in both size and prosperity in the years ahead."
Considering fiscal 2013 was the most profitable year in Deere's history, I'm inclined to agree with management. Earnings per share rose 19%, and the company is committed to rewarding shareholders. This is evident by the fact that Deere recently approved an $8 billion additional share buyback program, to supplement the existing $5 billion repurchase authorization.
Monsanto is also increasing its efforts in the emerging markets. The company generated 45% of its 2012 net sales from outside the United States. Above-average growth is being realized in several under-developed nations. For instance, sales in Brazil grew 25% last year, and sales in Asia-Pacific are up 21% since 2010.
Plenty of room for growth
Mosaic, Deere, and Monsanto have several tailwinds at their backs. Primarily, the extremely favorable underlying economics of the agriculture industry will provide years of strong growth. This is due in large part to booming populations and rising middle classes in several emerging markets, including China, India, and Brazil.
Results this year have been strong for all three companies, and the future should bring even better results thanks to their focus on emerging market growth. Shareholders are likely to reap considerable rewards, as each of these companies returns billions of dollars in dividends and share buybacks every year. As a result, growth and income investors alike should consider Mosaic, Deere, and Monsanto.
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