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TheStreet Open House

3 Agricultural Stocks Poised to Benefit from Drought

BOSTON (TheStreet) --The severe drought and heat conditions in the nation's heartland is devastating crops, which will result in higher food prices.

But the event is likely to be a long-term boon to companies developing drought-resistant seeds through the use of biotechnology.

The government recently reported the drought is the worst in more than 50 years, with about 56% of the continental U.S. suffering from a moderate to severe water shortage, which is part of a worldwide trend attributed in part to global warming. That's resulting in huge corn and soybean crop failures.

That means that demand for drought-resistant seeds and other such products should benefit a select few agricultural companies that have histories of applying technology to seed development.

The biggest players in the market are Monsanto (MON), DuPont (DD) and Sygenta (SYT).

These firms have applied biotechnological approaches to plant and fruit genetics, resulting in genetically modified seeds that make them resistant to pests and herbicides, which helps improve crop yields significantly.

As a result of their success, they've been readily adopted by U.S. farmers. Now about 90% of the nation's corn and soybean crops include genetically modified traits, though not necessarily of the drought-resistant kind.

But critics claim such seeds can potentially be harmful to the environment since they allow for the use of pesticides that are dangerous to the environment or to humans. Instead, they favor organically grown crops. Europe in particular has fought the use of genetically modified seeds by its farmers.

As a result, there is a continuing battle over the use of genetically modified seeds and the potential for increased government oversight of their development and use.

Nevertheless, the increasing growing demand for food given the rising world population, coupled with rapid climate change, is likely to result in wider acceptance of new seed technologies.

New applications are being developed and introduced each year. For example, in addition to its work on drought-tolerant corn, Monsanto is engineering cotton, wheat and sugar cane seeds that have been genetically modified.

The fertilizers and agricultural chemicals sector of stocks, as tracked by Standard & Poor's, is among the top-performing categories this year, with an 18.4% gain this year, including 7% in the past three months, versus the S&P 500's 10.5% rise.

Here is a snapshot of the three international agricultural firms most likely to see growth in demand for their seed and protective chemical products:

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