Banking on Agriculture

Well, I've sounded like a broken record lately, praising Canadian banks repeatedly, especially Royal Bank of Canada. In an article today in the Globe, Toronto-Dominion Bank's Ed Clark is quoted as saying "the current turmoil in credit markets is 'a very good thing.'

He said Canadian banks are “in very good shape” as the U.S. subprime mortgage market crisis plays out.

However, in the wider world “it's going to be quite ugly in the next few months,” Mr. Clark said.

He noted that the housing slump concentrated in seven U.S. states has already hit banks as far afield as Australia and Germany, and “I think people haven't gone to confession yet.”

Meanwhile, investors “are dumping quality assets because they have to” in order to cover losses on low-quality debt.

Still, “This is good, because if people do stupid things and don't pay a price for it, you don't run a good market system — and you've got to cleanse this out.”

Asked how long the cleanout will take, Mr. Clark replied: “I'm sort of hoping that by next March, we're through this.”

The key to playing the subprime mortgage market crisis is picking up those quality assets. Some of those quality assets are the big Canadian banks themselves. Accross the board, the future looks good for them.

But enough about Canadian financials and the credit crunch for now - lets look at something different.

I read an article the other day that looked at the boom in agricultural markets - partly prompted by fast expansion in the biofuel business. As the aticle states, this has opened up a world of potential opportunities for adventurous investors. The article high-lights three main companies.

As luck would have it, today, the stock price of one of the companies mentioned that I wanted to profile since reading the article four days ago, has shot up.

Check out Ag Growth Income Fund on Google Finance

Ag Growth Income Fund ... is a Winnipeg-based firm that sells grain handling equipment, such as conveyors and storage bins, across North America. It has benefited from the explosion in corn production that has followed the ethanol boom, chief executive officer Rob Stenson said yesterday, mainly because corn growers store the grain on their farms for just-in-time delivery to the ethanol plants.

The stock has gone up $2 since the article was published - coincidence or not?

Hemisphere GPS Inc. is another company mentioned in the article that "sells an entirely different product to farmers: Global positioning systems that help them precisely plant or harvest their fields, sometimes even automatically controlling the steering on their tractors." At an agricultural investment conference that he organized in Toronto, Mr. Winslow said that "Hemisphere's prospects are good because this fall's harvest will likely give farmers lots of discretionary income to buy the products. He rates the company a 'strong buy.' "

All in all, the point of the article and the agricultural investment conference was that a wide range of companies that service the farming sector is poised to do well.

Mr. Winslow predicts that demand for food products will steadily rise as higher income levels in Asia prompt increases in consumption of protein, more grains are used to generate ethanol and the worldwide population grows.

At the same time, the amount of arable land is shrinking, water supplies are under duress, weather is less predictable and yield improvements are slowing, he said.

That combination likely means "we are in the early to mid-stages of a multiyear secular uptrend in the global agricultural economy," Mr. Winslow said yesterday at an agricultural investment conference he organized in Toronto.

I'll be keeping my eyes on this sector over the coming months.

DISCLOSURE: I have no units of Ag Growth Income Fund, or shares of Hemisphere GPS Inc or Royal Bank.

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