Growing Opportunity in Agriculture

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By Frank Holmes

NEW YORK (TheStreet) -- With the world nearing 7 billion, there are a lot more mouths to feed. Throw in that many in emerging markets are requiring higher-quality diets and you've got a squeeze on the global food supply.

Bushels of corn reached their highest prices in nearly three years this week after the U.S. Department of Agriculture (USDA) reported that corn inventories will fall to levels not seen since 1996.

We've witnessed nearly a 100% surge in the price of corn over the past year as increased demand has been met with diminishing supply. Dry weather conditions due to La Niņa in Argentina and other disruptions have shriveled supply despite a near record amount of acreage being planted. Globally, corn consumption has increased 10% over the past five years to reach record levels and stock-to-use ratios for corn suggest we're currently experiencing the tightest global corn market since the late 1970s, according to Macquarie.

This jump is due to increased corn consumption for ethanol and greater demand for feed grain. The USDA estimates that just under 40% of U.S. corn production will be consumed for ethanol, up from 31% in 2008-2009. China will likely need to import 5 million tons of corn in 2011 in order to meet the country's booming need for feed grain. In the U.S., an additional 60 million bushels will be used for feed despite a reduction in livestock, according to the Des Moines Register.

Corn is just one part of the food pyramid that is rising. Around the world, prices for wheat, soybeans, cocoa and other grains have jumped in the last 18 months in conjunction with the global recovery. Prices have jumped because demand outstripped supply.

This chart from Potash Corp. (POT) shows that grain production has failed to meet consumption in seven of the past 11 years. This is despite producing a significantly larger amount of grain in 2009 than in 2000. Potash Corp. estimates world grain production declined more than 4% in 2010. An extreme drought in Russia chopped grain production in the country by 38% and 13% in neighboring Ukraine.

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