Grain prices are soaring and farmers, in turn, are investing more in seed, fertilizer, pesticides and equipment, which plays nicely into the hands of American Vanguard Corporation (NYSE:AVD) and KMG Chemicals (Nasdaq:KMGB), two companies that will likely report strong double-digit earnings growth this year. 

Fertilizer spending rose 20%, or $14 billion, last year and is forecast to rise another 18%, or $3 billion, this year. Spending on crop pesticides is forecast to increase 11%, or $1 billion, this year.

Rising demand from India and China, low grain stockpiles and the increased use of grain for ethanol and other biofuels have fueled huge increases in grain prices. A flood of new investors have entered the agriculture commodity markets in search of high returns and total index fund investments in corn, soybeans, wheat, cattle and hogs are up nearly five-fold to $47 billion today, from $10 billion in 2006.

Good news for American Vanguard Corporation, a developer of crop protection products, turf products and insecticides. The company has grown by acquiring niche products from larger companies such as BASF, The Dow Chemical Company (NYSE:DOW), Bayer and DuPont that divest some of their mature products to focus more resources on newly discovered molecules. Through this strategy, American Vanguard has acquired 13 new products since 2000 and produced 20% annual income growth over the last five years. In 2006, American Vanguard launched a new corn herbicide, Impact, which it believes will become a top five product in this . . .

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