By Jeff D. Opdyke, Editor, The Sovereign Individual
Dear Sovereign Investor,
I stood recently on the shores of the massive Rio de la Plata that flows past Montevideo, and watched the cargo ships ply their way to soy-handling ports upriver in Uruguay and Argentina and out to sea for the long voyage to China.
In either direction, these voyages are largely about one thing … pigs.
It’s well-known that China is a pork-lover’s paradise – but that is an understatement of enormous proportions.
Just as the U.S. has its Strategic Petroleum Reserve, China has a state-mandated strategic pork reserve, because the meat source is so crucial to the Chinese diet and has proven so susceptible to big price swings.
In fact, China’s roughly 446 million pigs is a population larger than the next 43 pork-producing countries combined. The chart below will give you an idea of just how massive China’s pig populace really is…
My point here is this: pigs have to eat.
And China’s pigs eat roughly six billion bushels of feed a year, largely soy. That’s 70% more soy than the U.S. produces annually – and the U.S. is the world’s leading soy producer.
China must import a lot of its soy to meet demand. Much of it comes from South America – particularly Argentina, Brazil, Paraguay and Uruguay.
An Opportunity to Profit
And that’s precisely what I was watching on the shores of the Rio de la Plata. Many of those cargo vessels plying their routes up and down the river were linking the soy farmers of South America to all those pigs in China … not to mention the mass of Chinese consumers who use protein-rich soy oil for their daily cooking needs.
As economic growth in China and other emerging Asian economies fuels dietary change and protein demand, that spells opportunity to profit for the savvy sovereign investor.
In my years as a financial writer, I’ve learned that great investment opportunities never crop up by accident. Instead, they are typically a response to some economic sea-change.
The problem is that investors never see a global phenomenon until it’s already upon them – and by then they’ve missed the easy money. Part of that blame falls on Wall Street, where brokers rarely look past America…
To profit from the rise of the emerging-market middle-class requires that you rethink what Wall Street has told you for decades. Because, the richest veins on the planet today run through places like Jakarta, Hanoi, Accra, Dubai, Shanghai and Mumbai – the areas where literally hundreds of millions of new consumers are taking root.
One response to this economic sea-change is the giant wave of consolidation now taking place in the global agricultural market.
Swiss-headquartered commodity-trading giant Glencore International (London: GLEN) last month swooped on Viterra, Canada’s largest grain handler, in a $6.1 billion acquisition that will shake up the established hierarchy of the global grain market.
Access to Growing Demand in China
This multibillion-dollar deal not only gives Glencore a foothold in the crucial North American grain market, it gives the company direct access to the growing demand across Asia, particularly in China, where Viterra already operates grain-marketing and distribution businesses.
Viterra is also a major producer of animal feed for pigs and chickens.
Glencore, which in 2011 turned over $186 billion, has built a world-class reputation as a group of smart, influential and wealthy traders. Ivan Glasenberg, the company’s chief executive, has made no secret of the fact that he aims to make Glencore a bigger player in the North American grain industry and in emerging Asian markets.
Meanwhile, a legislative change in Canada that will take place later this year means Viterra will be able to buy more grain directly from farmers, thus potentially increasing Glencore’s profits.
Glencore is also in the process of merging with mining giant Xstrata, a major player in the global copper market and, in turn, China’s breath-taking growth. No doubt that pursuing two takeovers at the same time is aggressive, but Glencore has proven adept at creating shareholder value over time.
The new Glencore should be a core holding for any investor who can see the obvious reality – that the emerging middle class is placing ever-greater demands on the commodity world. Glencore is key player in sating those demands.
Until next time, stay Sovereign…