Beyond the ethanol and commodities buzz these days, there are a few things that you may want to know before investing in the "food" business.
When investing in food stocks, you need to understand that there is a process that takes place, from the farm to our mouths.
Knowing how to identify each step and to recognize opportunities and risks is not always easy. Putting food in your portfolio can provide some diversification for the conservative as well as the risky investor as long as you understand each step.
Let's start with Mother Earth. Farmers need to prepare the soil to plant crops.
Next step, farmers sow the seeds, so they will need seeds as well as chemicals like fertilizer and pesticides. Some examples in this area would be Monsanto, Potash and DuPont.
Once the crops are mature, the farmer will need to harvest the crop. In order to do these things, they will need equipment.
Some examples of companies that make farm machinery are Caterpillar, John Deere and AGCO. These companies also manufacture heavy equipment for construction and mining, so if you want a more farm-focused company, you should do some additional research.
For the most part, farmers are only in the business of planting, growing and harvesting crops. Those crops will need to be transported, stored and processed. For these steps, you turn to another set of companies like Archer Daniels Midland and Bunge. There are also companies that will bring fresh food to market like Del Monte and Chiquita.
Picking individual stocks involves research and risk. The stocks mentioned in this article are examples and not recommendations on my part, but if you want exposure to the entire segment, Market Vectors Global Agribusiness can give you a cost-effective alternative to buying individual stocks and diversification in the agribiz sector of the economy.
We all eat food, so why not look at the opportunities that are available in this sector? Make sure that you do your homework first, as all opportunities in the food biz are not the same.
• Carol Perry, of Carol Perry and Associates, has been a resident of Northern Nevada since 1983.