U.S. Agribusiness/Food Producers Feed the World
American agribusiness/food producers may not seem to be great investments in this land of weight watchers. And with many agribusiness companies increasing production of pork, poultry and corn sweeteners, investors may be wary about price wars breaking out, which would wreck profit margins.
Don't worry, be happy: U.S. agribusiness will feed tens of millions of people in Asia and the former Soviet Union, where citizens finally have enough money to avoid chomping on something other than cabbage and gristle.
American agricultural exports should rise to $48.5 billion in fiscal 1995 from an originally projected $45 billion, according to the Agriculture Department, in part helped by the weak dollar and excess production of corn and soybeans.
But long-term factors are also at work. Let's start with demographic trends. If you've ever been to Bangkok, Jakarta, or Shanghai, you know that urbanization in Asia is booming. Urban workers don't have the time or space to grow food but they do have the money to buy it. At the same time, the world's population is growing. Between 1981 and 1994 it grew an astounding 25 percent. China, India and other nations in Asia simply can't keep up with the increase in demand for food.
Protectionism in Europe is also falling, allowing low-cost American products to gain market share in affluent Western Europe.
Finally, Congress will stimulate greater production by reducing subsidies and incentives to leave fields fallow. Farmers who don't want to go out of business will be forced to step up production and export.
Which companies will stand to benefit from these trends? Well, Tyson Foods and Hudson Foods are bolstering chicken and chicken part exports. Last year, for example, exports of chickens rose by 36 percent. By 2005, the U.S. is expected to export 4 billion pounds of chicken and chicken parts, eight times the level of chicken exported in 1985. Tyson is also in a joint venture in China to produce poultry.
Raw meat exports are also expected to continue to rise. Last year, they rose 20 percent. IBP, Inc., a large meat packer, is one of those companies bolstering beef exports.
In the longer term, seed companies, such as Pioneer Hi-Bred International will see increasing profits from abroad. Pioneer and DEKALB Genetics are increasingly using genetic engineering to come up with higher yielding varieties. These stocks, however, are fairly pricey in relation to their expected 1996 earnings.
Bottom line: increasing population and income in Asia and the former Soviet Union will help U.S. agribusiness/food producers to prosper.
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- Kent Group Inc. - Investment Banking for Agribusiness and Food Companies
- Investment banker specializing in agribusiness and food industries.