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Tickers in this Article: ADM, BG, XOM, CVX
The major agricultural producers are seeing demand skyrocket. China is driving demand for soybeans which means U.S. producers have rushed to meet the need, at the expense of corn production, which, in turn, is needed for bio-diesel.

The U.S. Department of Agriculture announced on Monday that 2008 would yield an 18% increase in soybeans, and an 8% decline in corn. Wheat harvests are expected to grow 6%. Bottom line: the run in commodities, and food prices, could just be getting started. (Learn how commodities can provide both downside protection and upside potential in Commodities - The Portfolio Hedge.)

Demand, Demand, Demand

China consumes more soybeans than any other country in the world, and its demand is behind much of the 60% price increase over the past year. All soy products are in heavy demand, including edible (protein), feed and oil.

Interestingly enough, in December of 2007, the Associated Press reported, "Despite soybean prices in a rally to 34-year highs and talk that some countries are rationing their consumption, demand from China was unabated." Clearly, the AP had a tight bead on 2008 demand from China then. Now, U.S. farmers are planting more soybeans to capitalize on growing demand.

But there's another twist to the story: corn. According to the Renewable Fuels Association's "Ethanol Industry Outlook 2008", there were 139 bio-refineries online in January 2008, with another 61 under construction. Of the 139-bio-refineries online, only nine do not use corn. Clearly, worldwide demand for most commodities, including soybeans and corn, is surging.

Who's Who
There are two clear global superstars in the agriculture world: Archer-Daniels-Midland (NYSE:ADM) and Bunge (NYSE:BG). Both stocks have fallen since highs seen in December and January.

The market is a bit worried about agriculture companies right now, mainly due to elevated input prices (fuels and fertilizers) and geopolitical unrest. However, these companies are global leader in one of the greatest booms in the history of commodities. Wall Street is also worried that the companies will not be able to pass costs along to consumers and end-users, but what many are have missed missed is the fact that Bunge and ADM aren't just commodity companies anymore, they're bio-fuel energy hubs, and could easily see a massive paradigm shift.

Mergers On The Horizon?
This next statement is speculative (I make them often, and occasionally take heat for them, but that's OK): Big oil would benefit immensely by wading into commodities, especially at a time when ethanol is hot-to-trot. While many might be seeing ADM and Bunge as pure commodity plays, think about a few of the most cash wealthy energy companies out there, who've been silently sitting on the sidelines. I'm talking about Exxon Mobil (NYSE:XOM) and Chevron Texaco (NYSE:CVX).

Both Bunge and ADM have seen torrid rallies in their stock prices in the past year; however, both stocks have retreated slightly in the past few months. If ADM and Bunge continue falling while commodity costs keep moving up, Wall Street could see some of the most creative deals in energy history, perhaps even by years end. (Learn how to invest in companies before they join together in our article The Merger - What To Do When Companies Converge.)

Bottom Line
Merger speculation aside, Bunge and ADM are multi-billion dollar commodity conglomerates that are likely to reward investors well in the years to come. Moreover, both stocks pay reasonable dividends too, something patient investors may be quietly waiting to take advantage of.

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