he classic play, of course, is farm equipment maker Deere (NYSE: DE). Deere's sales closely track farm income. Its shares popped Jan. 12 when the US Department of Agriculture announced that US corn, soybean, and wheat inventories had fallen by 10.5%, 15.2%, and 4.7%, respectively. Lower inventories translate to higher prices for US farmers and higher sales for Deere. (Deere is a member of my long-term Jubak Picks 50 portfolio.)
Seed makers are a slightly longer-term investment, because the next big payoff is from drought-resistant seeds that require less water, and that research is just starting to yield results. My two favorites here are DuPont (NYSE: DD) and Europe's Syngenta (NYSE: SYT).
Investing in Fertilizer Is Another Way to Play
You can't grow plants, no matter how drought resistant, without nutrients. And in many countries, applying more fertilizer is the best way, in the short term, to increase yields. My picks here are Potash of Saskatchewan (NYSE: POT), Agrium (NYSE: AGU), and Yara International (OTC: YARIY).
In that group, I'd probably give the lead to Yara International because of its recent moves on bulk liquid fertilizers. The company is in the process of acquiring the part it doesn't yet own of Yara Nipro, the market leader in bulk liquid fertilizers in Eastern Australia. Liquid fertilizers are particularly well-suited to farming in areas where water is scarce; in many of these markets, liquid fertilizers are just establishing a foothold. Only 3% of fertilizer in Eastern Australia is supplied in liquid form, for example.
Speaking of water, irrigation emerges as a growth industry as weather becomes less predictable. Lindsay Corporation (NYSE: LNN), a stock I added to Jubak's Picks in December, is a leader in big, center-pivot irrigation systems. Jain Irrigation Systems, which specializes in extremely efficient drip irrigation systems, is the other irrigation pick I'd make. Unfortunately for US investors, the company trades only on the Indian stock market. (The ticker is JI.IN, in case you can buy it there.)
Bigger Is Better Among Suppliers
Now let's go to the other side of the trend and look at companies that will profit as consumers and consumer-facing companies look to avoid the worst effects of rising food prices.
Brazil's Marfrig Alimentos is an example. In the last year, the company has become a supplier to US fast-food restaurants, and I think that's a likely growth opportunity as those outlets look for cheaper supplies. I'd also add Bunge (NYSE: BG), the big soybean supplier. Bunge has the global contacts to source the soybeans it processes at the best global price of the moment—and that will give the company the ability to ride the changing currents of rising food prices. (The stock is also in my Jubak Picks 50 portfolio.)
Following this same logic, I'd favor the biggest of the global food companies, because they can source their ingredients from whatever part of the globe is cheapest at the moment. Here, my pick would be Nestlé (OTC: NSRGF).
That list of ten stocks (not counting Jain Irrigation) doesn't exhaust the opportunity. But it should be enough to get you started.
At the time of publication, Jim Jubak did not own shares of any of the companies mentioned in this post in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), owned shares of Agrium, Deere, Lindsay, Marfrig, Nestlé, Syngenta, and Yara International as of the end of November. For a full list of the stocks in the fund at the end of November, see the fund's portfolio here. The portfolio at the end of December will be posted in a few days.
