China Trends Toward Milk, Soy, and Coffee Stocks

A Wall Street Journal article recently pointed out China's rising demand for milk. As a result, prices and profits are rising for American dairy conglomerates like Dean Foods (NYSE: DF  ) . We've seen this same effect with pork products: last year, Chinese firm Shuanghui International acquired America's largest pork producer, Smithfield Foods.

Just like Smithfield and its pork business, United States dairy companies face declining domestic milk demand in combination with rising Chinese demand. These trends will reshape America's dairy industry -- but what comes after China's milk demand rises may result in even more profits.

Milking profit
Two factors have led to China's rising milk demand: higher incomes and emulation of Western diets. These factors don't force China to import milk from American companies like Dean Foods, but many Chinese don't trust domestic companies to produce safe milk.

Chinese consumers pay premiums for reliable American foodstuffs -- more so when it comes to milk-formula products that could jeopardize their children's health. China's 2008 melamine-tainted milk scandal spawned millions of wary dairy consumers in the country.

That's all great news for American milk companies like Dean Foods, which can continue milking profit from China even though they face stagnant demand and overproduction at home.

However, what happens after China reaches peak dairy consumption, as the United States has?

Infant soymilk industry
China's tendency to follow the United States' historical development regarding cigarette, automobile, and food consumption patterns hints at a major investment opportunity.

WhiteWave Foods (NYSE: WWAV  ) peddles healthy foods that include soy and almond milk. The United States' soy and almond milk industry rose 8.4% to $1.5 billion in 2012. Health-conscious consumers spurned dairy in droves for these plant-based milk alternatives.

WhiteWave actually spun-off from Dean Foods in May 2013 and it now stands poised to capitalize on China's rising almond and soymilk consumption for decades to come. Last month, WhiteWave announced a partnership with Chinese Mengniu Dairy Company.

The partnership will allow WhiteWave to sell soy and almond milk in China. China still sips soy and almond milk like a baby, but its sizable market may soon be a boon to WhiteWave.

Coffee cream skimming
A third company will profit from China's rising dairy consumption, no matter how soon China favors soy and almond milk over conventional milk: Starbucks (NASDAQ: SBUX  ) .

Starbucks skims its cream from coffee-milk products like Frappucinnos and Soy Lattes. These drinks carry frothy margins and as China imports and drinks more dairy, that will further Starbucks' steaming growth spurt in Asia. Right now, projections call for 25% growth for Starbucks in Asia, and Starbucks plans to open 750 new stores in the region this year.

Fool's Scoop
Rising milk consumption in China indicates that imports of soy milk, almond milk, and coffee should also rise. Investors can profit today on these drinks as they will likely quench China's thirst for years to come.

In the short-term, Dean Foods sees a rise in milk prices and profits. In the medium term, Dean's spin-off WhiteWave Foods could sell oodles of almond and soy milks to China. All the while, Starbucks should skim cream off China's rising demand for premium coffee.

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2895899, ~/Articles/ArticleHandler.aspx, 10/25/2014 2:43:39 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement