Agribusiness (Food) Investing

by Wes Bridel on September 10, 2010

in Stewardship

Agribusiness is the industry surrounding the production of food.  We’ve been discussing asset management in a crazy economy and we just finished a segment on energy investing. Today, we’ll turn and look at agribusiness.  Let us know if you have questions that you’d like us to expand upon.

The world population has been exploding for a long time now.  Over a century ago, the “brightest minds” in Europe were convinced that we would run out of food long before now.  (and they had some gruesome ideas on how to deal with this “problem.”  Yet technology has continued to advance and people around the world are better fed today than just a couple decades ago.

That being said, agribusiness might be an excellent investment going forward.  Humans can’t live without food.  No matter how bad the economy gets, there is always demand for food.  This doesn’t mean prices don’t fluctuate.  They absolutely do.  However, there is a basic need in the world for food that won’t go away.  What happens is consumption changes from expensive to less expensive types of food and back again.

For example, as people of Asian countries leave poverty and join the ranks of the middle class, they consume more meat which had been previously unaffordable.  This meat is more expensive than grains.  More demand means higher prices.

As the world population continues to expand, more and more food must be produced to support it.  This is bullish for companies which produce food as well as those which support the more efficient production of that food.

How to Invest

Food – There are many food commodities (such as multiple grains, pork, cattle, & orange juice) which you can invest in through a futures account.  To do this, you will need to qualify and then open an account through a futures broker.

ETF’s have begun to be introduced which will let you do a similar thing through your normal securities brokerage account.

Food  Producers – Perhaps a better way to invest in food is to buy a diversified portfolio of food producers.  Because these are stocks, they can certainly be fickle, but if the price of food rises dramatically, you would think that these companies should be able to profit from this price increase and thus ultimately see higher share prices for you.  When you feel that the stock market has found a bottom, this might be an excellent place to consider for protecting your money.

If you have any thoughts or questions on this or other topics, please let us know.  Next, we’ll look at other commodities.

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