an appetite for the food boom

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    An appetite for the food boom
    Headshot of John Heinzl

    JOHN HEINZL

    January 4, 2008

    Donald Coxe remembers the moment he became an agri-bull. It was 2006, and the global portfolio strategist for Bank of Montreal had taken a leave of absence to trace his family roots in India, where his father was raised.

    "I spent two weeks travelling around rural India and I watched how people were adding dairy food and meat to their diet. And I came back and I said, 'the real shortage out there isn't oil any more. The real shortage is food."

    For Mr. Coxe, a top-ranked strategist, the biggest challenge facing the world is how to feed billions of newly middle-class consumers in India, China and other emerging countries where people are developing an appetite for the foods Westerners have been eating for decades.

    "That means we've got to expand food output dramatically," he said in a speech to the Empire Club in Toronto yesterday. This is where his bullishness about agricultural stocks comes in. Producing enough food for the world's growing middle class will require huge investments in fertilizers, genetically modified seeds and farm machinery.
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    The Globe and Mail

    Globally, the average yield on an acre of corn is about 30 bushels. In Illinois, where Mr. Coxe lives and where farmers have access to all the latest technologies, an acre of corn yields about 200 bushels.

    Canada is home to two of his favourite agriculture stocks - Potash Corp. of Saskatchewan and Agrium Inc. Shares of both have soared along with fertilizer prices, but Mr. Coxe thinks they have further to run and deserve to command premium price-earnings multiples.

    "Potash has a 1,000-year supply in the ground in Saskatchewan and it has more than 70 per cent of the world's unused capacity. Well, you should pay a premium for that," he said in an interview.

    Most analysts agree. Of the 15 analysts who cover the stock, eight rate it a "buy," six a "hold" and one a "sell." Yesterday, TD Newcrest's Paul D'Amico raised his price target and earnings estimate on the stock, "to account for a much better than we previously expected fertilizer pricing environment."

    Another one of Mr. Coxe's favourites is Monsanto Co., the biggest producer of genetically modified seeds. The stock jumped 8.5 per cent yesterday after the firm said its quarterly profit leaped 184 per cent.

    Monsanto and Potash have something in common: Both stocks more than doubled last year, and they're not the only companies riding the global agriculture boom to big gains.

    Consider the Market Vectors Agribusiness ETF, which consists of the 37 top agribusiness companies around the world (In addition to Monsanto and Potash, the top five holdings include fertilizer producer Mosaic Co. and equipment makers Deere & Co. and Komatsu Ltd.) The ETF (ticker symbol: MOO) was launched just five months ago and is already up 46 per cent. "In recent days, its trading volume has exploded," according to a press release yesterday.

    In Canada, a new agriculture ETF, the Claymore Global Agriculture ETF (ticker symbol: COW), launched just before Christmas. It's already up more than 10 per cent.

    Clearly, Mr. Coxe - whose own portfolio includes many agricultural stocks - isn't the only investor betting on food.

    Which is why, given the huge gains we've already witnessed, investors should pick their stocks carefully and resist the urge to bet the farm.

    http://www.theglobeandmail.com/servlet/story/LAC.20080104.RHEINZL04/TPStory/Business
 
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