Big Gains In Grains

With emerging markets expanding at a rapid pace, feeding their growing populations is becoming a big issue. Finding new reliable sources of food is paramount for many nations across the global. As extreme weather conditions become the norm and have their way with global production, grains are particularly interesting for investment as the base for many "higher value" foods. Limited acreage combined with demand increases stemming from population growth and rising global wealth, will help buoy long-term prices.

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Harsh Weather
Exporting nearly 75% of its wheat production, Australia is the fourth-largest exporter and seventh-largest overall producer of wheat. With recent torrential rainfall across the Aussie plans much of the nation's crop is ruined. Commodity analysts at CBH Group estimate that up to three million tons of this year's crops will need to be abandoned and that an additional 11 million tons will need to be downgraded to animal feed. This rain has caused farmers in the region to be nearly five weeks behind in the harvest and more rain is expected in Queensland throughout the week, promoting more downgrades.

Australia's recent woes are just latest in a string of bad weather conditions to affect grain's production. Drought issues followed by cold weather in Russia have prompted the Kremlin to hint at the possibility of importing wheat to meet demand. Canada has seen a large portion of their wheat crop classified as feed grade. Pakistan has limited exports amidst flooding in the nation, and a poor crop from the U.K. has it swapping from being a net exporter to a major importer of wheat in 2011.

Meanwhile, expanding China's thirst for commodities is putting pressures on demand. Analysts estimate that global wheat shipments will need to increase by 2% a year to 133 million tons by 2015-2016 to meet China's demand. Corn imports by China will rise to five million tons a year in 2015-2016 and rice imports are expected to hit 36 million tons.

Food for a Portfolio
These short-term supply problems are helping to underscore the long-term trend of the need for more food. Agriculture remains a great portfolio play and investors have a ton of choice with in the sector. Over-arching plays such as the PowerShares Global Agriculture (Nasdaq:PAGG) or the Market Vectors Agribusiness ETF (NYSE:MOO) are great additions to play the theme.

While heavy rainfall is to blame for Australia's recent anguish, the other extreme, drought, is becoming more prevalent as well. In 2009, China experienced its worst drought in over 50 years. New advances in drought resistant seeds are needed to help arid regions like the Middle East cope with their growing populations. As one of the leading genetically modified seed firms, Swiss company Syngenta AG (NYSE:SYT) is at the forefront of crop development. Shares trade at a cheaper P/E than rival Monsanto (NYSE:MON) and yield 1.6%.

Water management is crucial for grains production. High-tech irrigation company Lindsay Corporation (NYSE:LNN) manufactures control systems that monitor soil moisture content to provide the correct dosage of water. Fertilizer run-off and grey water recycling are also becoming huge issues. Nalco (NYSE:NLC) specializes in water treatment and will see a boost in business as water becomes a more precious commodity.

Finally, for investors wanting to bet directly on the rise of grain prices due to increased demand, the iPath DJ-UBS Grains ETN (NYSE:JJG) fits the bill. The ETN follows wheat, soybean and corn futures contacts and has rallied nearly 50% over the last six months. Following a similar index, the ELEMENTS MLCX Grains Index ETN (NYSE:GRU) can be used as well.

The Bottom Line
The recent weather and supply problems within the wheat sector highlight the need for adding agriculture to a portfolio. Short-term shocks to the system will ultimately lead to higher prices and long-term growing demand for more food will help support these increases. Adding agriculture to a portfolio via the PowerShares DB Agriculture (NYSE:DBA) or the previously mentions stocks is a great way to profit from these price increases. (For related reading, take a look at 5 Investment Risks Created By Global Warming.)

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