Above all, I’m a currency guy. I spend my days in front of a Bloomberg terminal, monitoring every move that takes place in the forex markets.
Before I was a currency analyst, I was a kid growing up in one of Brazil’s poorest states: Piauí.
Recently, though, my home state has become a place of interest for such top business executives as Alejandro Elsztain and Julio Piza. They are both presidents of leading agricultural companies in Argentina and Brazil.
In fact, I met with them during a recent South America trip. Mr. Elsztain revealed to me his interest in my humble home state.
He told me, “I’ve been to Piauí several times. I travel there so frequently that I’ve even learned some Portuguese.”
Piauí is responsible for less than 1% of the nation’s Gross Domestic Product and is described by The Economist as “the Timbuktu of Brazil, a remote, somewhat lawless area where the nearest health clinic is half a day’s journey away.”
So why is Mr. Elsztain so interested in Piauí?
What One Top Executive Knows about
Piauí Could Make You Rich
One word: Cerrado
Most of Brazil’s arable land is located in the Cerrado, a tropical savannah that spreads across a few states, including Piauí. A massive stretch of land, perfect for growing cash crops like corn and soybeans.
Argentina is already one of the main grain exporters in the world. But Brazil is the emerging superpower in the sector. No wonder this major Argentine company is investing so heavily in Brazil.
South America will take center stage in what is one of today’s biggest investment mega-trends.
I’ll tell you two ways to cash in on this megatrend. But first, let’s look at why agriculture will reign as a winning investment in the not-too-distant future.
9 Billion Reasons to Invest
in Brazil’s Agriculture
Speaking with this ag-insider in Argentina solidified my belief the industry has a very bright future.
You see, there are three main factors that drive food demand:
1.) Population Growth
The United Nations forecasts world population will grow from the current 6.8 billion to a whopping 9 billion by 2050. That’s 55 million more mouths to feed every single year.
Today, a rice-and-beans meal remains a luxury to many of the poor in emerging markets. But the middle class of Asia and most other emerging markets will continue to grow. As more people emerge from poverty, quality of life — including dietary habits — will improve.
2.) Increasing Urbanization
Urbanization is a part of emerging market growth. Rural poor move into cities seeking better jobs with better pay.
China has a very big economy, but it’s still a very poor country. Its per-capita Gross Domestic Product is only $6,600, which is seven times lower than America’s. In terms of wealth, the Chinese are as rich as Algeria or Namibia.
But that will soon change. As we’ve written before, the Chinese government increasingly raises minimum wages and its rural residents flood into the major cities for greater opportunity.
3.) Rising Incomes
As the very poor climb the social ladder, they first spend extra money on food.
And they begin to add meat to their meals. That’s why the United Nations estimates meat output will have to double by 2050.
And higher demand for meat intensifies the demand for agricultural products.
Ag Not Just in Demand, But ‘Super-Demand’
“Chickens are nothing more than feathers, corn and water.”
That’s what Julio Piza told me when I met him in Brazil.
He explained what the third world’s newfound taste for meat will mean for agriculture – super-demand. Not only do animals eat the same grains and agricultural products we do, but it takes acres of grazing land to feed a cow, which in turn means less acreage for growing other food.
Limited Supply + Growing Need = Soaring Prices
Besides growing demand for agricultural products, the supply of land is very limited. That’s one reason Mr. Elsztain is investing in Brazil. It has a lot more arable land available than Argentina.
The limited supply of agricultural products is a global trend. The net supply of corn, for example, has been declining since the 1960s.
With more mouths to feed, and limited ways to increase supply, prices of agriculture products have no way to go but up. Billionaire investor Jim Rogers’ stance is the same as mine. In his words:
“The fundamentals for agriculture have gotten better. The inventories are now at the lowest they’ve been in decades, not years. We’re going to have very serious shortages of food everywhere in the world, and prices are going to go through the roof.”
Rising prices will certainly be bad news for your wallets at the grocery store. But the investment opportunities are tremendous.
Here are two ways to play the long-term rally in agriculture that are designed to be easy for the investor, but profitable enough (in a short enough time frame) to satiate the currency trader in me.
Big Agriculture Gains in 2 Plays
And as a currency guy, I can’t help but believe the agricultural boom that’s about to take hold of Brazil will hurtle the Brazilian real upward.
One way to play it is to buy the Brazilian real exchange-traded fund, BZF, and ride Brazil’s agricultural wave to long-term profits. I would buy this fund on pullbacks below $26.50.
Already, Brazil’s Central Bank is taking action to push down its currency. When central banks intervene in this way, the result is temporary. They may succeed in manipulating the real lower in the short term, which means a greater buying opportunity for you.
And although I’m a currency analyst, given everything I discovered in my South American research trip, I can’t help but like agriculture itself.
An easy way to invest in the global trend is to buy the Market Vectors Agribusiness ETF (NYSE:MOO). This fund invests in agriculture-related stocks of companies across the globe. From companies that operate farms to those supplying agricultural equipment and even fertilizer.
By investing in these two funds you will not only diversify away from the declining dollar, but also participate in one of the biggest investment booms of the future.
Editor, Exotic FX Alert