DuPont Looks Well Positioned in the Agri-Boom

By Mike Caggeso

E.I. du Pont de Nemours & Co. (DD) - commonly known as DuPont - raised its first-quarter earnings by 20%, highlighting the investor-friendly team of Agriculture Boom companies that are capitalizing on the demand for raw commodities.

The Wilmington, Del. conglomerate raised its earnings estimate to $1.29 per share, up from its March 14 outlook of $1.14 to $1.19.

The company - a component of the 30-stock Dow Jones Industrial Average - also raised the lower range of its full-year 2008 earnings estimate by five cents to $3.40 to $3.55 per share.

"Growth in agriculture and emerging markets, along with continued cost productivity gains, are enabling us to overcome challenges in certain U.S. markets and higher cost ingredients," said Charles Holliday, Jr., DuPont chairman and chief executive officer.

"While the macroeconomic outlook remains difficult to predict, we are focused on our priorities to capitalize on rising global demand for our products; further penetrate key markets in the world’s rapidly growing geographies; and extend our productivity improvement programs," he said.

Some of those priorities include its crop-protection chemicals and seed hybrids, which are in dire need as emerging and major economies alike try to accommodate growing populations around the world.

Earlier this year, the firm received approval for two new herbicides that are designed to protect soybeans and wheat. In addition, farmers using DuPont’s Pioneer brand seed hybrids won top honors in national crop-yield contests for corn and sorghum last year.

And DuPont’s well positioned, not just because of its products, but also because it provides them in more than 70 countries.

Supplying "Double-Duty Crops"
DuPont is one company of several argi-biotech firms - companies using biotechnology to solve farming problems - fattening that are their bottom lines during the current agricultural boom.

Another is St. Louis-based Monsanto Co. (MON), whose recent second fiscal quarter earnings doubled from the previous year - earning $1.13 billion, or $2.02 per share, in the three months ended Feb. 29, up from $543 million, or 98 cents per share, in the prior year - on the strength of its corn seed and herbicide sales.

Once highly controversial, Monsanto’s genetically engineered products have established a definite foothold in agricultural markets throughout the world. Farmers in China and India planted more than 17 million acres of biotech crops last year, according to BusinessWeek.

Approximately 7% of the world’s farmland acreage is planted with genetically modified crops. While some pockets of controversy remain - and likely always will - Monsanto’s financial performance is a strong indication that sales of these modified agricultural products are only going to increase in the years to come.

Emerging middle classes in China, India and elsewhere are driving the need for commodities. As more people incorporate meat and dairy products into their daily diets, supplies of "double-duty crops" - capable of feeding both livestock and people - continue to fall short of global demand. Drought and floods have also done their part to reduce crop yields, but companies such as Monsanto and DuPont are doing their part to try to boost those yields.

"The agri-boom is alive and well," said Horacio Marquez, a Money Morning contributing editor and a former Wall Street veteran. "The relative lack of rain in the southern United States, Argentina and Brazil promise to restrict supply [of farm-grown crops], while demand is exploding as more and more global consumers come out of poverty and demand better food, including bread, meat and vegetable oils."

According to Marquez, this trend is even more powerful in India and China. Similar trends are playing out in other Latin American, African, and Asian countries that export commodities and are being lifted by globalization. Energy trends - including the move into ethanol - also are driving demand for robust seeds.

DuPont reports its first-quarter results on April 22. Monsanto reports its fiscal third quarter on June 23.

Two More Agri-Boom Profit Plays
If investing in agri-biotech isn’t up your alley, there are two alternative investments.

Van Eck’s recently launched Market Vectors Agribusiness ETF (MOO) spreads out its assets across the agriculture industry. This fund reflects the infrastructure of the agriculture industry, focusing on chemicals (34%), agri-product operations (33%), equipment (24%), livestock operations (6%), and ethanol/biodiesel (2%). Deutsche Bank’s Power Shares Agricultural Fund (DBA) is intended to reflect the performance of commodities in the agricultural sector - soybeans (31%), wheat (28%), corn (23%), and sugar (16%).