Food Demands of Soaring Populations Mean that Deere, Mosaic, and Agrium Have a Bright Future
The biggest challenge facing the agriculture industry over the long-term is the growth of the global population. As populations and economies expand, nations around the globe are about to see millions of new entrants into the middle class. This has resulted in an unprecedented strain on global food production, and agriculture companies are hard-pressed to meet the constantly increasing demand for food. Combine this with the fact that land available for food production is a finite resource, and it's plain to see the immense challenges facing the agriculture industry in the years ahead.
Thankfully, companies operating in the agriculture industry, including Deere & Company , Mosaic , and Agrium are more than capable of tackling these challenges. The favorable underlying economics of the agriculture industry presents a very strong tailwind for each of these companies in 2014 and beyond.
Emerging market growth will lead the way
Growth in developed nations like the United States pales in comparison to that of many rapidly emerging counties, due largely to their booming populations. According to Mosaic, the global population recently passed seven billion and will reach nine billion by 2050. And, consider that farmers will have to grow as much food over the next 50 years as they have over the full course of recorded human history. This in itself presents a host of challenges to the agriculture industry, but these issues are even more complicated by the fact that the amount of land won't increase any time soon. This means efficiency, particularly to serve the rapidly growing emerging markets, is key.
This should serve Deere well, since it derives approximately three-quarters of its net sales from its Agriculture & Turf segment. Deere's highly productive machines are critical to feeding the world, and as a result, the company is seeing positive momentum across many of its key markets. In China, government subsidies will support the agriculture industry. And, in India, where the government is focusing on mechanization, Deere's equipment should fill the demand perfectly.
Of course, farmland needs nutrients, which is where Mosaic and Agrium come in. Mosaic exports approximately two-third of its phosphate products across the globe. One country key to Mosaic is Brazil, a member nation of the BRIC emerging economies. Over the past year, Mosaic has exited under-performing businesses in other parts of South America, including Chile and Argentina, to reinvest in its Brazil operations.
A separate BRIC nation, China, may also boost the profits for both Mosaic and Agrium in the year ahead. China's economy likely grew at a 7.6% rate in 2013, and all that growth means a clear need for agriculture investment. In response, China's state-owned fertilizer supplier and distributor recently agreed to purchase as much as a third of China's necessary potash imports next year from a company partially co-owned by Mosaic and Agrium, along with PotashCorp of Saskatchewan.
This should only complement Agrium's future outlook, which remains bright thanks to favorable underlying fundamentals. Agrium management believes its long-term outlook remains strong due to higher-than-average global crop prices and strong farm incomes. In addition, the previously mentioned strains presented by booming global populations will compel growers around the world to maximize production, which should be a boon for Agrium's business. This is already materializing, as Agrium's retail business wrapped up its second-strongest third quarter in the company's history.
Closing thoughts
The global population is booming, particularly in the emerging markets, and thankfully, the world's biggest agriculture companies are more than capable of tackling the challenge. As populations expand, so will the demand for food, which places an unprecedented strain since the amount of land available for production will remain constant. As a result, it's imperative for Deere, Mosaic, and Agrium to position their businesses to meet the agriculture demands of rising populations across the globe. Fortunately for investors, there's plenty of evidence that suggests they're doing just that.
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The article Food Demands of Soaring Populations Mean that Deere, Mosaic, and Agrium Have a Bright Future originally appeared on Fool.com.
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