Investors Should Prepare as Drought Could be 'New Normal'

October 18, 2012 3:48 PM EDT
Analysts at Bank of America Merrill Lynch issued a report today on how the recent drought in the U.S., the worst since 1956, could affect investors. While the drought isn't nearly as bad as it was during the 1930s Dust Bowl, some fear drought condition might be the 'new normal'.

"The U.S. and global drought underscores increased long-term challenges to global food, water and energy security, as demand for food and energy each are expected to climb 50 percent by 2030 with the demand for water growing by 40 percent over the same period, potentially creating a perfect storm of interlinked challenges," say analyst.

For investors, these changing conditions pose a range of opportunities and risks. The stocks exposed to global drought-related themes are those related to areas such as water, fertilizers, crop science, energy efficiency, second-generation biofuels and renewables.

In the agricultural and chemicals sectors, there are short-term opportunities and risks. Analysts think seeds, fertilizers and crop-protections chemicals stand to benefit. In the consumer sector, weather conditions should have minimal impact on packaged foods. In the industrials, drought conditions are actually a positive for farmers as soft commodity price increases more than offset production decline and help extend the global agriculture cycle, noted the report.

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