Russian Prime Minister Vladimir Putin dropped a bombshell in early August.
 
Unrelenting drought, scorching heat and uncontrolled fires have ravaged farmland and destroyed Russian crops this year. It has been estimated that roughly a third of Russia’s wheat harvest has been lost. So Putin took the only course available — he announced a ban on wheat exports for the rest of this year.
 
If you follow the news, you probably heard about the ban. But I bet you didn’t hear that in September, the ban was extended until late 2011. It was scarcely covered.
 
Russia is the world’s third-largest wheat producer, accounting for 13% of global supply. As you’d expect, wheat prices spiked on the news — peaking near $8 a bushel, up from about $4.25 in June.
 
Russia’s loss could be somebody else’s gain. In fact, wheat sales account for $10.6 billion in annual revenue in the United States alone — and many are rushing to pick up the slack. Elevated wheat prices could put more cash in farmers’ pockets, and it’s a safe bet that much of it will be spent on seeds, fertilizer and other crop inputs.
 
But Russia isn’t the only country struggling to fill its quota. Australia is also experiencing drought conditions; Canadian crops were drowned by torrential rains, and African farmers are seeing entire fields blighted by disease.
 
Last month, the U.S. Department of Agriculture warned that corn production in the United States was slipping, and supplies (relative to consumption) could hit a 15-year low in 2011.
 
Severe water shortages in many areas represent another challenge to growers. The amount of water thundering down the mighty Colorado River is less than half what it once was. In China’s Hebei region, aquifer levels are dropping 10 feet per year, and 969 lakes have completely vanished. #-ad_banner-# Whether or not you believe climate change has a hand in all this, it’s clear that the world is struggling to produce enough food to satisfy a growing population.

By the end of the decade, it’s estimated there will be 1.1 billion more mouths to feed. Keep in mind that rising incomes have also led to a profound change in dietary habits, as people move from starches to protein (meat). [Read: “How ‘Progress’ Created a $174 Billion Epidemic”] And all those chickens and cows must also be fed — the rule of thumb is that it takes seven pounds of grain to produce one pound of meat.
 
Don’t forget demand for biofuels is putting further strain on supplies. It’s estimated that 19 billion gallons of ethanol will be produced worldwide this year, which will eat up millions of acres of corn.
 
Food, animal feed and fuel — three different groups all hungry for the same crops.
 
That means farmers around the world will be challenged to grow more from each acre of soil. And they will need plenty of help. So the future looks bright for companies that sell pesticides, crop nutrients, drought-resistant seeds, tractors, irrigation equipment and other specialized equipment.
 
But most agriculture stocks were hit hard by last year’s downturn and haven’t gotten back on their feet just yet. Monsanto (NYSE: MON), for example, trades at just one-third of its former peak near $150 a share.
 
Action to Take –> So what’s the best way to profit? I may be biased (I’m the Chief Strategist behind The ETF Authority newsletter), but this space is perfect for an ETF.
 
When a single company is behind a blockbuster trend or product (for example, the iPhone), that’s when I want an individual stock. But when there’s an entire industry benefiting, it’s best to go with a fund. This way, you’re sure to capture the bulk of the gains, without the risk of buying into one specific company. And I think the bulk of the gains are still to come…

P.S. — My ETF Authority readers know about my favorite agriculture fund — I profiled it in my October issue. Since I highlighted the idea two weeks ago, it has already gained +7%. But as I mentioned above, I think this sector is just getting started. To learn more about The ETF Authority and how to get the name of this fund, I invite you to read this memo.