We are in a new era of agriculture and food production. There was a great quote in
The Wall Street Journal today from Stefan Tangermann, director of food,
agriculture and fisheries at the Organization for Economic Cooperation and
Development. "Suddenly, there's a factor that was never visible in the domestic
market," he says. "That is: What do the Chinese eat?"

We're seeing price increases in food across the board. The Journal had an
interesting piece covering the European perspective today ("Higher Food Prices to
Hit Europe"). In Europe, the strong euro absorbed some of the increases. But that's
changing. Italy's pasta makers will increase domestic prices by 20%, for example. I
imagine that's a big deal over there. In Germany, milk-based products could rise
50% this year, according to Germany's Dairy Industry Association. The price of
mayonnaise was up 10% in June.

This is the real price inflation people deal with every day. It's a picture you don't
find reading official government reports on inflation -- because they don't capture
these changes at all, or, to the extent they do, they are ignored. How many times
have you read the line "excluding food and energy" when reading a release or news
story on the consumer price index?

Anyway, at work are the usual suspects… the push for biofuels and the
consumption of more meat and cheese by developing countries. Another factor is
the weather. The drought in Australia has hurt agricultural production there.

In any event, the food production dynamics favor certain industries.

American Vanguard (AVD:nyse), for one, is in a good position.
The second-quarter report was good, with earnings coming in a shade better than
expected. What was more important, was how management continued to
emphasize the opportunities the company has ahead of it. On the conference call,
management maintained that the company would generate "significant free cash
flow" in the fourth quarter, most of which would pile up on the balance sheet. The
company could then use the cash to pay down debt -- of which there is only $65
million -- or use it to enhance the value of the company some other way.

International sales were 20% of the total. The company has "great opportunities
abroad," mostly in Central and South America.

AVD also picked up an institutional follower. Soleil Securities initiated coverage
with a buy and a target of $21.

AVD is a buy under $15.00.