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The Answer to the World's Coming Food Crisis

By Tom Dyson, publisher, The Palm Beach Letter
Wednesday, February 27, 2008

"Where's all the soy?" I wondered to myself.
 
I had traveled for 27 hours – into the exact geographic center of South America – to find soybeans. But looking out of the bus window, I could see only dense tropical foliage.
 
Then we came over the top of a hill, and I found them. A neat patchwork of fields stretching to the horizon filled my view from both sides of the bus. There were tractors... and combine harvesters... and lines of irrigation scaffold. I had entered Soylandia.
 
Two writers at Fortune Magazine coined the name "Soylandia" last month. They use this name to describe the largest continuous patch of farmland on the planet. It stretches from Argentina to the Amazon basin and from the Andes to the Atlantic forests.
 
"Soylandia... is almost entirely unknown to Americans," they write. "But it may well be the future of one of the world's most important industries: grain agriculture."
 
Wheat and soybeans are already at all-time highs. Corn is at a 12-year high. After a long bear market in food prices, I think we've now entered a long bull market in agriculture. I believe the world faces a food crisis. And for the next several decades, we're going to struggle to meet world food demand.
 
The United Nations Food and Agriculture Organization says world food production needs to increase by 60% to meet growing demand over the next 20 years. The world simply doesn't have enough arable land available to do this.
 
Nor do we have enough water... From New Scientist:
 
Every teaspoon of sugar in your coffee requires 50 cups of water to grow it. Growing the coffee itself requires 140 liters of water, or 1,120 cups. The 250 grams of cotton needed to make a single T-shirt uses 25 bathtubs of water.
 
Meat production is also water-intensive. To produce a kilo of meat, you need eight kilos of grain. To produce eight kilos of grain, you need 12 meters cubed of water. That's 3,166 gallons of water... enough water to fill a backyard swimming pool. Crops use about 75% of all water withdrawn from rivers, aquifers, and lakes. One-third of the world's population is living in water-scarce areas.
 
In 1985, China's average consumption of meat was of 20 kilograms per person per year, but per-capita meat consumption has now increased to 50 kilograms. Four hundred of China's 600 largest cities are short of water.
 
I haven't even mentioned global warming. It will shorten growing seasons. Or increased oil prices. High oil prices make transport and fertilizer more expensive, and biofuel (which competes for resources with food) more attractive.

Soylandia is at the heart of Brazil. Brazil is the world's largest exporter of beef, coffee, orange juice, sugar, and chicken. In 2006, Brazil overtook the U.S. to become the world's largest exporter of soy.

Brazil has 23% of the world's arable land... and at least 40% of it is unused. The country has more unused arable land than all the cropland in the U.S., and that's without any clearing of the Amazon rainforest. Brazil also has ample water... . Proof: 91% of Brazil's electricity comes from hydropower.

I think Brazil is going to feed the world and provide it with biofuel, so I came to Soylandia to look for agriculture investments.

I'll tell you more about what I found in my next column...

Good investing,

Tom

Market Notes


HOME DEPOT'S HEADLINES ARE BAD, ITS SHARES ARE GOOD

Home Depot's fourth-quarter earnings declined 27%. Competitor Lowe's earnings declined 33% in the same period. News from the overall housing market is equally terrible... but housing-related stocks are rallying. What's going on?

As I've mentioned in this column before, the stock market is the greatest prediction machine on earth. What happens in the market today will be headline news several months from now. We saw the machine at work last year, when retail stocks began plunging. Reports of weak consumer spending soon followed. So are we seeing the reverse happening right now? Maybe…

After falling 40% from its 2007 high, Home Depot has regained its footing around $25 a share. It's still too early to call this the beginning of an uptrend, but the bellwether of American home spending has at least stopped falling. If this proves to be the bottom in Home Depot shares, news of consumer spending going from "bad to less bad" will follow.



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