Farmers need seeds to plant renewable fuels, and they need billions of dollars’ worth of them. Plus they need seeds that produce hardy stalks with corn that has more oil yield than the crops in the old days. Here, Monsanto stands out as an amazing innovator, with patents galore for seeds that can produce much more corn per stalk than could even be imagined ten years ago. Monsanto’s expensive on a per-share basis. And the stock’s not undiscovered; it’s up 100 percent since last summer. But the company just keeps blowing away estimates, and a new corn varietal is about to hit the market that could mean game, set, and match for farmers trying to meet the outrageously aggressive ethanol standards the federal government has passed.
A less risky way to play seeds is to snap up some DuPont, another remarkable seed innovator. You get a snazzy 3.5 percent dividend, better than most bonds after taxes, but you also get stuck with some domestic housing and auto businesses that are handicapping the explosion of agricultural earnings.
Where the biggest money’s being made is perhaps the most dicey business in the world: fertilizers. I say dicey because for so many years the industry’s been plagued by overcapacity. That, however, is history. With farmers desperate to take advantage of these prices, fertilizer’s another key ingredient to bountiful harvests. Two of the best fertilizer companies are PotashCorp of Saskatchewan and Agrium; the first is the lowest-cost producer, the latter is integrated from mine to retail. But my favorite is Mosaic, which has operations globally and can take advantage of the outrageous prices the Chinese are willing to pay for fertilizer.
Here’s how to make money off the flush farmers: Own the stocks of the companies that make the equivalent of their derricks and drill bits, their picks and their pans.
Finally, there’s the company that has spent millions trying to be sure that its interests are “well represented” in Washington: Archer Daniels Midland, the agricultural processor. With the ag renaissance, this company should be making money hand over fist. So far it hasn’t done much because of managerial snafus, but the environment is so favorable, it’s bound to benefit.
If our government were to show any rational thinking, by the way, we would be making gasoline with soy, not corn. Ethanol is an entirely inefficient method of producing energy, by some estimates consuming almost as much as it generates. It’s a fuel no one really wants. It’s difficult to transport because of its corrosive nature. And subsidizing it is causing runaway food costs and a nasty bout of inflation that’s hitting the poor hardest (soybeans are more efficient as a fuel and easier to produce and distribute). If we came to our senses, Bunge, the soybean company, would be the outfit to bet on. But don’t count on the soybean play; corn’s got too many states’ voters pulling for it.
If the agricultural stocks were simply riding the wave of increased grain use because of worldwide food shortages, that alone would make me bullish on the companies I’ve mentioned. We simply don’t have enough food—or ag stocks—to go around. But the etched-in-stone mandates of ethanol use, no matter how absurd they may be, will ensure at least a half-dozen years of extraordinary returns for these stocks. It’s a rush that puts oil and gold to shame.