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An Update on One of My Favorite "Boom and Bust" SectorsBy Frank Curzio, editor, Phase 1 InvestorFriday, February 4, 2011 The world is running out of food.
I know... That sounds crazy to someone living in the U.S. Our supermarkets are always packed with meats, eggs, and vegetables. And we have one of the highest obesity rates in the world.
But the trend is clear when we take a look at what's happening in places like Egypt, Haiti, and Cameroon. Families in these countries are now paying 35%-40% of their monthly income on food. In China and India, sugar and meat prices are near all-time highs due to rising populations and lack of supply. Prices for corn and rice are at their highest levels since the 2008 food crisis.
Below is a chart of the Food Price Index from the Food and Agricultural Organization (FAO). The Food Price index measures the monthly change in international prices based on a basket of food commodities.
As you can see, food prices are up an average of 50% since 2009.
 Some industry experts believe this is an anomaly. After all, if we just plant more seeds and have good weather, we'll see more supply come online. That would help ease prices and ultimately cure the world's food shortage.
But the math tells a different story.
You see, according to the United Nations, the world's population is expected to grow 35% over the next 40 years. To put this in perspective, that's about 2.5 billion more people than we have living on Earth today. It's the equivalent of another two Chinas. Imagine how much food it would take to feed another two Chinas.
And that's just half the problem. These people will need a place to live. That means more industrialization. Most of these homes, power plants, and schools will be built on areas where crops are produced today. The only solution to our food crisis comes from fertilizer companies.
Fertilizer increases production from existing crops. In other words, it helps increase the size and improve overall quality in fruits and vegetables. In farmer's lingo, this is called an increase in crop yields.
That's the reason why Potash, Monsanto, and almost every other fertilizer company is trading at 52-week highs. These stocks have been some of the best market performers over the past eight months.
That's also why I suggested buying Potash below $120 in March. Potash prices were trending higher. Inventory levels declined for five straight months. Yet, demand for potash was stronger than ever.
All these factors pushed Potash shares up 35% since then. All those factors still exist today. And I believe shares will push past the $200 level in the short-term.
Here's the thing: It might sound like a boring business to produce the stuff that makes crops grow. But it's difficult to find a more "boom and bust" sector anywhere in the market. On any given week, shares of a fertilizer company can rise 5% to 10%.
So if you're looking to get into this sector, be patient. The stocks are extremely volatile. In fact, after my recommendation of Potash, shares fell more than 15% over the next few months – before surging higher.
I suggest using any pullback in the fertilizer sector as a buying opportunity. I can't think of another sector that has a stronger long-term trend.
Good investing,
Frank
Further Reading:
"When you read about this in the next year or two, don't say you weren't warned... and don't say you aren't prepared," Porter told DailyWealth readers in November. Read his full warning here: How the U.S. Government Guaranteed the Coming Food Crisis.
Last month, riots over milk and flour killed three people in Algeria... Serbia announced it's considering and export tax on wheat... and now American food chains are planning price hikes. See what could be coming here: The Global Food Crisis Is Upon Us.
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