In the ongoing horse race between the dueling threats of slow growth and inflation, slow growth just pulled ahead at the last turn.
A spate of bad recent economic news has turned into a torrent. Anemic 1.8 percent GDP growth for the first quarter, much worse-than-expected May employment numbers, and dismal data from consumer spending to manufacturing have confirmed that this economy is sucking wind.
In reaction, bonds have rallied and commodity prices have fallen during the past month. A slow-growth prognosis normally indicates that investors should look toward bonds and other fixed-rate investments as well as a safe haven in cash.
But here's the problem.
This may well be just a temporary "soft patch" in the economy, like last year. The powerful forces of increasing global demand and a weakening dollar that drove commodity prices skyward during the past year may well resume in haste as the economy picks up. Inflation and rising interest rates will crush bond prices and investors on the sidelines could miss a huge opportunity.
What's needed is an investment that can thrive in either environment — slow growth or rising commodity prices and inflation.
There just might be such an animal.
One of the most defensive and recession-resistant businesses is also a commodity – food. Agriculture stocks and commodities can perform well in times of slow growth or inflation. People tend to go on eating in any economy. Food and agricultural inputs (including seeds and fertilizer) also are tangible goods that should maintain value during times of inflation and falling dollar values.
In addition, there are a host of powerful trends that could make agriculture the investment of the decade.
Supply and Demand
Rising world populations and increasingly Westernized appetites in nations like China and India are creating an enormous strain on the world's food supply. The World Bank estimates that worldwide meat demand will increase by 85 percent from current levels in the next 10 years alone and demand for food in general will increase 50 percent from current levels by 2030.
At the same time, fresh water and arable land are becoming increasingly scarce, a problem made worse by the increased use of farmland for biofuels instead of food.
This supply-and-demand dynamic is creating a powerful catalyst for higher food prices. The FAO (Food and Agricultural Organization of the United Nations) Food Price Index (an index of five food-commodity groups including meat, dairy, cereals, oils and fats, and sugar) rose to a new all-time high earlier this year and increased 36 percent from April 2010 to April 2011.
Although prices have pulled back in May, the dip could be short-lived.
This has been a year of disastrous weather and poor crop production, which should buoy prices. China and Europe have experienced the worst droughts in many decades while the United States is grappling with the worst floods in a century along the Mississippi River. And, the year isn't half over.
In addition to individual stocks, there are a couple ETFs that enable investors to play the industry in general.
The PowerShares DB Agriculture Fund (NYSE: DBA) invests in futures contracts of agricultural commodities including corn, wheat, sugar and soybeans. It is an easy way to play agriculture as a commodity and take advantage of rising prices.
The Market Vectors Agribusiness ETF (NYSE: MOO) holds individual stocks of some of the largest agricultural companies in the world, including Canadian fertilizer and feed producer Potash Corp. of Saskatchewan (NYSE: POT), seed and pesticide giant Monsanto (NYSE: MON), and farming equipment maker Deere and Co. (NYSE: DE).
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