Agriculture ETFs: Are You Ready To Go Hog-Wild For Profits? (MOO, DBA, JJG)
Sean Brodrick: Are you ready to go hog-wild for profits? China’s annual meat consumption of 71 million tons is more than double that in the United States, according to the U.S. Department of Agriculture. U.S. meat consumption is falling while China’s is rising fast.
Nowhere is China’s growing love of meat more evident than in pork. Here are some fascinating facts …
- Three-fourths of the meat that China consumes is pork, and its pork consumption should hit 52 million tons in 2012 — far, far ahead of the 8 million tons consumed in the U.S.
- Half the world’s pigs — 476 million — live in China. Historically, the Mandarin symbol for a house in China was a roof with a pig under it.
- You know that the U.S. has a strategic petroleum reserve. Well, China is building one, too — AND it has also created something we don’t have, a strategic pork reserve. That’s where pork is stored against the calamity that the pork supply runs short in China … the better to stave off potential riots sparked by pork shortages.
So the Chinese consume a lot of pork. But they also consume a lot of other agricultural commodities — more and more of them every day.
A Hunger for Corn and Wheat
Recently, the U.S. Grains Council reported that China may displace Japan as the world’s largest corn importer as early as 2014, as demand for meat and feed grains expands along with its middle class.
Imports of corn by China, the second-biggest consumer after the U.S., are forecast to more than QUADRUPLE to 4 million tons in 2012 from a year earlier, according to an April 10 report from the U.S. Department of Agriculture.
And corn is just one of the agricultural commodities that China is chowing down on.
China’s wheat imports in January and February were 580,000 metric tons, more than three times higher than the same period last year. China’s soybean imports jumped 13% at the same time, while China’s soybean imports for the whole year are expected to jump 25%.
In fact, China has reported a 500% increase in grain imports of all types from last year, hitting a record high in March, customs data from Beijing revealed. Grain imports reached 1.64 million metric tons, up 50% from the previous month and sixfold from a year earlier.
It’s the highest increase since China started reporting data.
A Squeeze on Home-Grown Supply
China has to feed a fifth of the world’s population with only 8% of the world’s arable land. As incomes rise, people in China switch to more meat-heavy diets. And that means all those animals need to be fed, too …
- Chickens eat about two pounds of grain to gain one pound of weight.
- Pigs eat three pounds of grain to gain one pound of weight.
- Cattle eat around seven pounds of grain to gain one pound of weight. And the Chinese are eating more beef all the time, too!
And that means China’s grain imports are soaring.
And the trend of rising incomes in China has a lot longer to go. Check out this chart …
Looking at the chart, you can see that urban income is growing. But the incomes — and food consumption of rural citizens — is about 30 years behind that of urban dwellers.
Do you think the rural Chinese will be content to eat porridge while the urban Chinese eat steak? I sure don’t!
China is pouring money into grain production, but it’s a losing battle. Where will this take us? Here’s a USDA forecast of how much soybean China will import in 2020 …
That’s a whopping 88 million tons, more than double what China is expected to bring in this year. But then, the USDA made this estimate before China’s imports surged this year, so that agency may be raising its estimate again.
How You Can Play China’s Hunger for Grain
There are plenty of interesting agriculture funds to whet your appetite for returns. I like the Market Vectors Agribusiness ETF (NYSEARCA:MOO), PowerShares DB Agriculture Fund (NYSEARCA:DBA) and the iPath DJ-UBS Grains ETN (NYSEARCA:JJG), and they’re all proven funds.
China’s hunger for grains should be a big and bullish driver of agricultural commodities going forward — but do your own due diligence before investing in anything.
Yours for trading profits,
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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