In the world of commodity investing gurus, few can match the track record or fame of Jim Rogers. The investment legend is probably best known for his work with George Soros in creating the Quantum fund, but Rogers has been more active in the commodity space as of late with the creation of several indexes and a book on the subject as well.
Jim Rogers has long been known as a commodity bull, especially in agriculture where he believes that the sector as a whole is undervalued. While it is difficult to predict exactly when Roger’s agricultural predictions will come to fruition, certain trends can be seen forming right before our eyes. First of all, analysts expect the global population to reach 9 billion people by 2048, increasing demand significantly. Secondly, when agricultural prices are low, there is very little incentive for young people to farm due to very slim margins, in return for labor intensive work. This lack of young farmers will become apparent once the current farmers who’s average age is 59 decide to retire, resulting in a downward shift in supply. This combination of increased demand for food, and decreased supply will lead to upward pressure on agricultural commodity prices according to Rogers, until one day farming becomes profitable enough to attract ambitious young people back into the space.
Furthermore, given the agricultural sector, the winds appear to be at the backs of various agricultural commodities and their producers for years to come. In light of this, we highlight three stocks that could be great choices for investors who believe, like Jim Rogers, that the agricultural bull market has just begun:
At the heart of any agricultural demand spike is likely to be Monsanto (MON), a Missouri-based firm best known for its engineered seeds. The encouraging factor about Monsanto is that the company’s total operating expenses are pretty much flat from year to year, especially SG&A costs, while revenues fluctuate much more wildly. Some may see this as a bad thing but to me this suggests that Monsanto is heavily influenced by prices for its underlying products, meaning that when agricultural products are in high demand this company surges as well. Monsanto has far less debt than its peers but the company could face blowback from citizens and governments that seek to promote unengineered, locally grown foods, a growing trend in many parts of the nation. Furthermore, competition is increasing for Monsanto, and the firm’s inability to hold off these new entrants is something that investors should also consider [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk].
Potash Corp of Saskatchewan (POT)
Many investors might not realize it, but fertilizers, like those made by POT, are absolutely critical to boosting yields for agricultural products across the board. As the demand for food from emerging markets grows, the name of the game in agriculture will be getting the greatest yield possible out of the limited space available for farming. Nutrient rich fertilizers provided by companies like Potash will become increasingly important as farmers try to re-nourish their lands in between exhaustive growing seasons. POT could stand to benefit if Roger’s prediction turns out to be true and agricultural commodity prices surge; farmers would bid up the price of fertilizers in order to take advantage of rising prices by boosting crop yields, adding to returns for POT.
Deere & Company (DE)
Although firms that produce commodities or futures contracts could benefit if Roger’s predictions come to fruition, firms like DE, which supply the machinery required to maintain the fields, could also surge in value. This manufacturing company has world-wide recognition as the premium brand of farm equipment and as the demand for food grows, the demand for tor efficient machinery will follow suit. Deere’s recent success could help to boost investor returns even if Rogers is a little early on his predictions for a bull market run in agricultural commodities. With that being said, investors should keep an eye on a couple things when it comes to this firm. Deere could face significant competition in emerging markets, especially from home grown rivals, and if DE isn’t able to keep up this key market will be put out of the company’s reach for the most part. Additionally, debt is a crucial part of the company’s structure and adverse changes in interest rates or the credit rating of the firm could cause interest expenses to surge and hurt other areas of the company’s business as well [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
Disclosure: No positions at time of writing.