A good record
According to Reuters: “Over the last two decades, Harvard’s $31 billion endowment, the nation’s largest, has delivered annualized returns of 12.5 percent…” That’s pretty impressive. So it makes sense to listen when the head of the endowment, Jane Mendillo, talks about investment themes. The food demand theme has pretty long legs.
Although developed markets are mature and food demand is relatively stable, that isn’t the case in emerging regions. Residents of these nations have often lived largely agrarian lifestyles. As industrialization has taken hold, however, that has begun to change. More and more people are moving to cities and are working in factories. And earning more money, too.
As more people shift to non-farm work, it means there are less people living off the land. This increases demand for farm products. Additionally, as a nation industrializes, the eating habits of its citizens often change. More meat tends to be consumed. Increasing wealth is a key driver of this trend.
It takes more grain to feed livestock than it takes to feed a human. So, as more meat is consumed, more grain must be grown. Add in the fact that many emerging markets still have relatively fast growing populations and it’s easy to see why seed companies have an opportunity to thrive. Three to look at are:
Monsanto
Monsanto Company (NYSE:MON) is the industry giant and breaks its business down into two segments, Seeds and Traits and Crop Protection. The Seeds and Traits division produces seeds for such crops as corn, cotton, and soybeans. A key aspect of this business is creating seeds with desirable traits like drought resistance or increased yields. The Crop Protection business produces and sells herbicide products, notably “the world’s best-selling herbicide, Roundup.”
Seeds don’t sound like a high-tech business, but they are. The company earmarks around 10% of the top line toward research and development. Monsanto Company (NYSE:MON) focuses most of its research on “new biotech traits, elite germplasm, breeding, new variety and hybrid development, and genomics research.” Basically it is looking to create seeds that do more than just grow.
The company’s top and bottom lines have been on a fairly steady upward climb since the middle of the last decade. Its dividend has been on a steadier accent, though the yield isn’t particularly impressive. The company is recovering from some pricing gaffs, but is well positioned in the agricultural industry.
Note that an antitrust review of the company’s business may leave the shares open to new- driven performance, so conservative investors may want to stay on the sidelines for now.
DuPont
E I Du Pont De Nemours And Co (NYSE:DD) is much larger than just seeds, but it has been moving to grow in the area of late. Basically, it sees everything that Harvard’s Mendillo sees. So, this diversified chemicals company is a relatively safe way to gain exposure to the grain market without taking on all of the risks of a company with a singular focus.
