There's a crisis occurring in southern Africa, although chances are you haven't heard about it. The good news is there are solutions to this potentially devastating problem, and they could open profit-making opportunities for investors.
Corn is a critical commodity for many nations in sub-Saharan Africa. Having been introduced centuries ago by traders from North America, it is now a dietary staple for most households. Typically prepared as sort of a porridge called nshima, it replaces the rice, potatoes or pasta that you'll find on dinner tables in other parts of the world.
Right now, drought conditions have severely reduced local corn production, with deficits seen in the current growing season amounting to millions of tons of corn in nations including Botswana, Zimbabwe, Malawi, Lesotho and South Africa.
And in Zambia, where corn has remained relatively abundant, waves of armyworms are devouring entire fields.
For years, many African governments rejected GMO (genetically modified organism) corn seeds and corn imports. But that's rapidly changing -- and not because governments and markets are coming around to the benefits of GMO products. Instead, it's because they have no choice.
Exporters are receiving major orders, with South Africa leading the charge when it comes to the acceptance of GMO corn shipments. One of the top companies in the global corn market is Bunge (BG - Get Report) . Headquartered in White Plains, N.Y., the company is a leader in both grain corn and processed corn products. Bunge shares were roughly flat in mid-afternoon Thursday trading.
As with others in the commodity market segment, Bunge's shares have seen better days. The stock was trading above $92 a share as recently as the middle of 2015. It has been hovering in the mid to high 60s since November. But the company should benefit from increased export volume. Consider the current price a discount.
Meanwhile, there's huge promise for GMO seed companies helping Africa itself grow a new, modified crop. Corn seed that can be developed to be drought tolerant is already ideal for much of the African market.
And these companies have also got a weapon for combating those armyworms. The trick is to engineer the corn seed to have a particular protein, Bacillus thuringiensis (Bt), that is neutral for human and animal consumption but harmful for pests. When ingested by the worms Bt shuts down their digestive systems.
Monsanto, which is in the process of merging with Germany's Bayer, continues to be the accepted leader of the Bt and drought-protected GMO seed market. The merger has already been pitched to the new U.S. administration and could strengthen the reach of U.S. GMO products to the European Union as well as to African markets.
Swiss agri-chemical company Syngenta has been shopping for mergers to gain a more market-competitive size, including a deal with Monsanto that was eventually stopped by U.S. anti-trust regulators.
Now ChinaChem is on track to buy the company. The U.S. is set to approve the deal with little leverage. While the European Union is dragging its approval, the multibillion-dollar transaction doesn't seem to create anti-trust conflicts, only political concerns.
China itself offers promise for the GMO market. While originally opposed to U.S. GMO commodities and seed products, China is ramping up GMO acceptance and development. ChemChina's deal for Syngenta is evidence of this trend.
In addition, another company, Origin Agritech, is working with the USDA on its own version of a GMO corn seed. Test crops are being monitored and, given the approvals granted to Monsanto and Syngenta, as well as to DuPont, for their seeds, Origin Agritech may bring even broader GMO acceptance for all the companies' seeds -- and profits to investors.
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