China, the world’s largest wheat producer, is facing a severe drought in areas of the North China plain that account for 67% of the country’s wheat crop. China’s wheat production fell to 114.5 million tons in the 2010 harvest from 115.1 million tons a year earlier. This year the harvest could drop another 4 million tons.

This is a big deal since China is also the world’s largest consumer of wheat and accounts for about 17% of global wheat consumption.

The government is working to provide additional irrigation to mitigate the drought.

In Western Australia—across the continent from Australia’s worst floods—drought has put the wheat crop in Australia’s largest wheat producing state in doubt. The impact of the decade-long drought itself is intensified by a battle for Western Australia’s scarce water supplies between farmers and miners. There are about $170 billion in new mining projects on the books for the next five years. All those mines need water to help dig out and process ore, to remove waste rock and to suppress dust. Mining is already the largest user of water, taking 27% of licensed water, compared to 22% for agriculture. Six years ago the proportions were reversed with farming getting 37% of water and mining 26%.

I think you can see where I’m going with this, right?

No, no. Not more about the increasing global squeeze on food supplies. I’ve dealt with that quite enough recently, thank you. (See my posts http://jubakpicks.com/2011/01/14/food-prices-are-back-to-2008-peaks-here-are-10-stocks-that-tap-into-the-trend/ and http://jubakpicks.com/2011/02/01/egypt-has-escalated-the-food-crisis-and-shifted-global-economic-policy-on-inflation-too/ )

This time I want to talk about water scarcity, the trend that everyone sees but that it is so difficult to invest in. Read more

Is there profit in water by the drop?

Water is the difference between paradise and hell.

As far as I know that isn’t an old Moorish saying, but it should be. Driving through the fields of Andalucía last week, I remember looking out the right hand-window and seeing nothing but burnt brown earth and olive trees. Out the left-hand window the fields were a vivid green. I swear that I even saw the huge leaves of tobacco plants.

The difference was irrigation. Spiders of pipe crawled across those green fields spraying water on the crops.

No wonder that in Washington Irving’s history of Granada’s Alhambra it is the bringing of water that is so often the mark of a great king. Alhamar “introduced abundant streams of water into the city, erecting baths and fountains, and constructing aqueducts and canals to irrigate and fertilize the Vega. By these means prosperity and abundance prevailed in this beautiful city, its gates were thronged with commerce, and its warehouses filled with luxuries and merchandise of every clime and country.”

And rulers who don’t bring water?

Look at India where the failure of the monsoon rains threatens the rule of a Congress party that won a decisive election victory just last year. India’s monsoon rains provide the main source of irrigation water for the country’s 235 million farmers. The government has declared 246 of the country’s 600 districts drought affected.

Recent rains have helped–the monsoon rain-fall deficit is now about 29%; in July it was a startling 44%–but not enough to prevent huge declines in crop yields. Rice production, for example, could fall by 10 million metric tons.

Drought has brought rising food prices and extreme steps from the government. Rice exports were halted in July. The government is talking about banning corn exports—again. The last ban on corn exports was lifted only last October. The government has offered farmers subsidies for diesel fuel to run water pumps, deferred the repayment of farm loans, and cut interest payments on short-term crop loans. In addition the country is working to get farmers to sow winter crops, including wheat—to make up for the 10 million tons of summer-sown rice lost to the drought.

India is an extreme case: About 60% of India’s crop land is totally dependent on rainfall since it isn’t irrigated at all and decades of over pumping from underground supplies have left many rural wells high and dry above sinking water tables.

But the country isn’t alone by any means. Which means long-term investors should be on the lookout for the shares of companies that can “fix” what isa a global water supply problem. In this column IO’ll give you three stocks to research. Read more

Update Flowserve (FLS)

Turns out the pumping business is a very good place to be in this economy.

On July 29 Flowserve (FLS) announced second quarter earnings of a better than expected $1.92 a share and raised its earnings forecast for 2009. The company increased its target for 2009 earnings to $7.15 to $7.75 a share from an earlier target of $6.75 to $7.50.

Sales climbed to $1.09 billion. That was an increase of 6% from the first quarter of 2009 but a decrease of 6% from the second quarter of 2008.

Taking out the effect of a stronger U.S. dollar, on a constant currency basis sales climbed 4% year-over-year.

 Bookings, a key measure of future sales trends, climbed by 7% from the first quarter of 2009. Read more