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Buy Farm Stocks on Multi-Year Food Rally, Nomura Says

Sept. 10 (Bloomberg) -- Investors should buy producers of seed and fertilizer, farm machinery and companies involved in the shipping and storage of soft commodities as food prices go on a “multi-year” rally, according to Nomura Holdings Inc.

Demand from emerging economies and constraints in agricultural production are driving food prices higher, Nomura analysts led by Rob Subbaraman wrote in a report obtained today.

“We believe that most models significantly underestimate future food demand,” the Nomura analysts wrote in the note. “Supply has also become more uncertain due to greater use of biofuels, global warming and increasing water scarcity.”

The United Nations Food & Agriculture Organization’s global Food Price Index surged in August to the highest level since September 2008 as wheat and rice prices advanced after Russia, the world’s third-largest wheat grower last year, banned exports and flooding in Pakistan damaged rice crops, curbing supplies of Asia’s two main staple grains. The agency will hold a special meeting of policy makers in Rome on Sept. 24 to discuss the global cereal markets.

Rice prices are becoming “worrisome” as global supplies tighten because of crop losses in some of the largest exports, according to Lito Banayo, head of the National Food Authority in the Philippines, in an interview in Manila Sept. 8. Rice futures in Chicago have gained 23 percent since slumping to the lowest in almost four years in June.

Inflation Concern

Bangladesh, Morocco and Algeria are among countries most vulnerable to rising food prices, which may result in a sharp decline in economic growth, surging consumer-price inflation and worsening fiscal finances, according to Nomura.

China Agri-Industries Holdings Ltd., a Hong Kong-listed unit of China’s largest grain trader Cofco Ltd., China Yurun Food Group Ltd., a pork supplier, United Phosphorus Ltd., an Indian herbicide producer, and Wilmar International Ltd., the world’s largest palm oil trader, are among companies that will benefit the most from rising food prices, according to Nomura.

The four stocks have gained an average 6.7 percent this year as of yesterday’s close, compared with a 2.1 percent decline in MSCI All-Country World Index of developed and emerging markets.

To contact the Bloomberg News staff on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

To contact the editor responsible for this story: Reinie Booysen at rbooysen@bloomberg.net

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