Copyright © 2013 by Real Wealth Report Published By: Weiss Research, Inc. Publication Date: November 2013

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Introduction Thanks to massive demand from China, food stocks are already exploding higher. But as much a factor as China is in driving food prices higher it’s important to note that rising food prices are not just confined to China. Rising food prices have gone global! Nearly every country on the planet is experiencing rapidly increasing food prices. Make no mistake about it: The food sector is an investment area you can use to protect and grow your wealth — while at the same time, help the world tackle the crisis.

Part I: The Global Food Crisis

The way the media reports it, this global food crisis came out of nowhere and caught everybody by surprise. But if they had been Real Wealth Report readers, they’d have seen it coming seven years ago. Back in January 2005, I warned readers that food prices were heading for an inflationary spiral which would spell the end of cheap food ...

“World demand for food will keep growing significantly as the world population continues to explode and the diets of developing countries grow more sophisticated. Meanwhile, the world is running out of arable land to cultivate ... demand will grow rapidly while supply will struggle to keep up and could eventually fall behind.”

And while nobody else in the financial press was talking about food, Real Wealth Report was the first to urge readers to invest in what I called “Protein Gold” — agriculture and food production. Few investors were interested in food at the time. “Why so many investors ignore the profit potential in agricultural commodities is beyond me,” I said. “Admittedly, investing in food is not as sexy as investing in other natural resources such as gold or oil. [But] the profit potential is just as good, and there’s the added benefit of social cause.” Suddenly, food has taken center stage to share the spotlight with oil and gold. Suddenly, food is a hot topic. Suddenly, everybody wants to get on the bandwagon. The good news is there’s still time to beat the crowds to the best “agribiz” investments. Seven years after I first called investors’ attention to the profit potential and social cause of investing in agriculture, the sector is still only in its early bullish stages. So there’s still plenty of money to be made in the food sector — and billions of people to help. The problem is, most investors don’t have a clue how best to invest in it. Having studied trends in agribusiness closely over the last seven years, I do.

So let me help you understand the macro-dynamics of the global food crisis. Then, I’ll give you specific guidance on how to pick the most favorable agribusiness investments.

A Silent Tsunami Global hunger is not a new issue. We’re all familiar with the heart-tugging scenes of big-eyed emaciated children with bellies distended by starvation. Yet these scenes usually have portrayed localized pockets of famine, most often the result of crop failures from prolonged drought or the ravages of war in a specific area. This time, it’s different because we’re seeing people go hungry all around the world, all at the same time. “This is a silent tsunami,” said Josette Sheeran, former executive director of the United Nations World Food Program, in The Economist’s cover report on the crisis. Indeed, according to a recent study by the Worldwatch Institute, in 2011, an estimated 800 million people were classified as undernourished. That means that nearly one in six people on the Earth suffers from undernourishment. Plus, with unemployment and reduced wages as a result of the economic slump, and food prices that have generally risen for the last several years — and set to rise further in the months and years ahead due to the declining dollar — even the middle class in poor countries are finding that they have to give up basic necessities such as health care, just to eat. The middling poor — those on $2 a day — are pulling children from school and cutting back on vegetables so they can still afford rice. While those on $1 a day are cutting back on meat, vegetables and one or two meals, so they can afford one bowl. The desperate — those on 50 cents a day — face disaster.

In well-to-do areas such as the United States, Europe and Australia, rising food prices haven’t caused much real pain, although consumers are beginning to feel the pinch at the checkout counter. That’s because, in those countries, only about 10% of an average family’s budget goes to food. But the impact of even a small rise in food prices means cutting back — or going without — in countries such as Mexico, where food costs can consume as much as 50% of a family’s income ... or Bangladesh and Nigeria, where food costs are more than 66% of the consumer price index.

Galloping “Agflation” Skyrockets Food Costs After declining 75% over the three decades from 1974 to 2005, food prices made an about-face and started to soar. Globally, overall food prices have exploded 83% in the three years from February 2005 to February 2008, according to the World Bank. And even though global food prices have retreated since their 2008 peak, consumers are still paying almost 16% more for food than they were just two years ago. In emerging markets, food inflation nearly doubled in 2007-2008 to 11%. Dairy prices alone rose nearly 80% in 2007, while grain climbed 42%. Meat and egg prices in China exploded higher by 50%, dragging up the inflation rate. Meat prices are especially vulnerable to rising prices. That’s why China’s largest pork producer, Shuanghui International, has recently struck a deal to purchase Smithfield, the largest U.S. pork producer, for $7.1 billion (including debt). Many emerging countries are also reporting the highest inflation rates in a decade. The World Food Program reports that rising food prices and food shortages are life and death matters for 20 million of the world’s poorest children. To try to put a lid on food costs, more than a score of countries have imposed varying forms of price controls. China boosted export tariffs on fertilizer by 100%. It also slapped on domestic food price controls, as have Morocco, Egypt and Mexico. Meanwhile, a dozen or so countries, including India, Vietnam, Serbia and Ukraine, have imposed export taxes or have limited food exports. Argentina and Russia are trying both.

Of course, price controls are populist parlor tricks to fool the masses into thinking their leaders are “doing something.” These measures never solve any problems. To the contrary, they usually make matters worse by inhibiting production (why bother when you can’t make enough profit to make it worth your while?) and driving supplies into black markets, where prices soar excessively.

Less Food In The Global Cupboard

I don’t want you to think I’m being an alarmist, but consider this recent warning from UN Secretary-General Ban Ki-moon: “The rapidly escalating crisis of food availability around the world has reached emergency proportions,” which could lead to widespread starvation and topple governments. Not only is food more expensive, but in many parts of the world, there simply isn’t enough, as extreme weather has impacted harvests. Hot, dry weather hurt crops in India, Canada, Argentina and Australia ... while cold, wet weather put a damper on harvests in the United States. In fact, in India, rising temperatures and lack of rainfall is stagnating grain output, threatening India’s food security, according to a weather scientist. Heavy rains and floods have washed away crops in southern Africa, causing major destruction of farmlands in Zambia and Mozambique. Severe drought conditions have sapped agricultural production in Australia, one of the world’s crucial food-producing regions. At one point, its rice production plummeted by 98%, and its largest rice mill in the southern hemisphere, capable of producing enough rice to feed 20 million people, was closed down and mothballed for lack of crops to process. Meanwhile, floods and a deadly typhoon have left the poorest people in Bangladesh standing all day in lines to get government-subsidized rice handouts. And North Korea is struggling with its worst food supply crisis since the famines of the 1990s. But it isn’t just “poor” countries facing a food crisis. Canada, for example, is already bracing itself for a drastic change. While Canadian food costs are currently among the lowest in the world, “the [low food price] bubble is going to burst,” predicts Mel Fruitman of the Consumers’ Association of Canada.

In 2008, we witnessed cases of hoarding in America. With rice prices going through the roof, restaurants and food-service institutions started stocking up to hedge against future price hikes. And quite frankly, nowhere is the food crisis more obvious than in China! The simple truth of the matter is that ... China is one of the world’s largest and most volatile customers for agricultural products. That’s naturally, not going to change because it’s a function of having 1.3 billion people, more than any other single country in the world. Yet, for a country of its geographical size, China has extremely limited resource capabilities, not just in metals, which most followers of China’s economic growth tend to focus on, but in food production as well. Meanwhile … China’s huge income growth and urbanization are boosting food demand considerably and changing the mix of foods consumed in China. As incomes grow, demand for meat, fish, vegetable oils, and dairy products are growing particularly fast. The country’s transition from rural semi-subsistence to urban lifestyles will also have profound impacts on consumption patterns, shifting demand from self-grown rice, wheat, and vegetables to fish, meat, processed foods, and restaurant meals. The increase in meat consumption may be one of the most important developments in China’s agricultural sector. China’s meat consumption has gone from 8 million tons in 1978 to 71 million tons in 2012. The Chinese now eat 260 eggs per person a year, which is equivalent to France.  

China produces nearly half of the world’s pork and is the world’s second-largest poultry producer and third-largest beef producer. Yet even here, China is pushing the outer bounds of what it can produce domestically. There are myriad number of other factors affecting food prices in China, chief among them, transportation and logistics costs — which account for an estimated one-fifth or more of retail prices in China, much higher than in developed countries.

There are also inadequate port facilities and lack of warehousing and cold storage facilities. And most of all, as I mentioned already, despite its geographic size, land and water shortages are severely limiting China’s agricultural production. Surface water supplies have dwindled in much of northern China, and ground water is being depleted through heavy agricultural, industrial, and household use. Meanwhile, environmentally fragile cultivated land is being returned to forests and grass cover, while a massive amount of previously highly productive agricultural land is being lost to urbanization. All this and the concomitant pressure for food prices to rise in China can be potentially destabilizing, as it can be anywhere in the world, because ...

“A Hungry Man Is An Angry Man” Food Riots And “Politics Of The Belly”

“A wave of food-price inflation is moving through the world, leaving riots and shaken governments in its wake. For the first time in 30 years, food protests are erupting in many places at once,” The Economist recently reported. The stakes are high. The food crisis threatens global security as much as — or possibly even more than — oil, terrorism or geopolitical disputes. When “politics of the belly,” as it was called in a treatise by Jean Francois Bayart, pits the “haves” against “have-nots,” the term food fight soon may no longer just mean silly frat-boy behavior, but instead, bloody conflicts. Unfortunately, the violence has already started. Not long ago, we saw the “Tortilla riots,” breakout in Mexico, involving tens of thousands of protestors, when the price of flat corn bread soared 400%. Bloody uprisings over the lack of food — or its prohibitive costs — have erupted in Haiti, Cote d’Ivoire, Cameroon, Egypt, Indonesia, Senegal, Burkina Faso, Ethiopia, Mauritania and Madagascar. One person died in the riots in Cote d’Ivoire ... six in Haiti ... 24 in Cameroon. And when tens of thousands rioted in Mogadishu, Somali troops opened fire, killing two protestors. Troops have been deployed in the Philippines, Pakistan and Thailand to protect food stores from looting.

Already, the food crisis has sparked civil unrest in 33 countries — while 37 countries are believed to be at risk for still more outbreaks of violence and protest over escalating food prices. The food crisis is “an apocalyptic warning,” according to Tim Costello, head of World Vision Australia. “Until recently we had plenty of food. The question was distribution. The truth is because of rising oil prices, global warming and the loss of arable land, all countries that can produce food now desperately need to produce more.” So, you now have a good understanding of the macro-dynamics of the global food crisis. And I trust you also realize how urgent — and how important it is to global stability — that this problem be solved. So, let’s turn our attention in that direction ...

Investing In The Solution And Helping To Feed The World

The ominous food crisis facing the world offers investors an extraordinary opportunity — not only to make money, and not just based upon China — but also to support the solution to the problem. There’s only one practical solution: Produce more food. Lots and lots more food. The World Bank calls it “sustainable agricultural intensification.” There’s not a lot of spare land left in the world to turn into new crop land. The United States, long the world’s breadbasket, has no more new land to farm. Only Brazil and Russia have any substantial untilled land acreage, but it would take a decade or more to get it into production. Plus, in Brazil, it would mean destroying more rain forests to produce crops instead of breathable air. Therefore, it stands to reason that to stave off a global food crisis, we must increase the crop yield from existing farmlands and expand food production from the sea. Fortunately, there are numerous ways to do this: More effective fertilizers, organic farming, high-tech machinery, precision farming methods, higher-yield crop varieties, integrated crop-livestock production, integrated pest management controls, improved irrigation usage, and alternative agriculture methods (e.g., aquaculture, algaculture, hydroponics).

We’ll also need more efficient processing techniques, along with cheaper wholesale and retail distribution systems. The companies that come up with successful, innovative solutions to the challenge of “producing more from less” should be big winners for investors. They could be food producers, supply and support providers, processors, distributors and wholesalers, or retailers. GPS-guided tractors and harvesters, robotic planters and cultivators, computer-generated and monitored crop management programs, and other technological aids are already producing record yields in the United States and other developed nations. As emerging countries continue to prosper, they will also turn to these technologies, creating a vast new customer base for those companies. Investing in commodity futures contracts is best left to the professionals. But there are numerous agricultural ETFs (exchange-traded funds) that allow you to participate in this sector. Plus, some individual companies in the agribiz sector stand out in my research as sitting in the proverbial catbird seat to profit handsomely by coming to the rescue in the food crisis. So, let’s look to make some profits — and be part of the solution ...

Part II: My Long-Term Investment

Recommendations In The Food Sector In this section, I give you no less than five recommendations to seize the profit opportunity in food stocks, not just from China, but from rising pressure on food prices all over the world, and because of the ongoing devaluation of the U.S. dollar, which puts upward pressure on food prices almost universally. Before we get started, two important notes: First, in most of the below recommendations, I suggest purchasing the investments on a pullback. The share prices I specify below take a pullback into consideration. I also include risk-reducing protective stops you should use.

Second, I will have many more recommendations in the food sector going forward. So, be on the lookout for them in the monthly issues of Real Wealth Report! Recommendation #1: PowerShares DB Agriculture Fund (DBA), an exchange-traded fund that tracks the Deutsche Bank Liquid Commodity Index-Optimum Yield Excess Return Index, which reflects the agriculture sector. I believe DBA belongs in everyone’s portfolio for the long haul. Please refer to the regular monthly issues of Real Wealth Report for precise timing of when to buy DBA. Recommendation #2: Archer-Daniels-Midland Company (ADM), a major player in the agricultural market. It procures, transports, stores, processes and merchandises a wide array of products, from oilseeds, corn and barley, to peanuts and wheat. ADM operates more than 230 processing plants and more than 330 sourcing facilities in more than 60 countries on six continents. Another essential holding for anyone’s portfolio. Please refer to the regular monthly issues of Real Wealth Report for precise timing of when to buy ADM. Recommendation #3: Bunge Limited (BG), a U.S.-based agribusiness and food company that operates in the farm-to-consumer chain. BG has more than 450 facilities in more than 30 countries, and is committed to improving the global agribusiness and food production chain. Right now, Bunge is not a buy, nor even a hold. However, I do expect it to become a core recommendation in the near future. Please refer to the regular monthly issues of Real Wealth Report for precise timing of when to buy BG. Recommendation #4: Agria Corp (GRO), a China-based agriculture company with operations in China and internationally. GRO produces corn seed and sheep breeding products. It also owns through Agria Asia a 50.01% equity interest in PGW, New Zealand's largest agricultural services company. Please refer to the regular monthly issues of Real Wealth Report for precise timing of when to buy GRO. Recommendation #5: Listed on the NYSE, China Green Agriculture (CGA) makes humic acid, a liquid fertilizer. The company’s main operations are in China, in 22 provinces, 4 autonomous regions and 3 municipal cities. It owns

two R&D centers and two fertilizer manufacturing bases in Jinong and Gufeng with an annual capacity of 355,000 metric tons production. Please refer to the regular monthly issues of Real Wealth Report for precise timing of when to buy CGA. Lastly, as noted previously, keep your eye on your inbox for your Real Wealth Report issues … for precise buy recommendations on the above stocks … and for more recommendations in the food sector!