Why Agriculture ETF Outlook Looks Promising

As the world’s markets and ETFs recover from the beating they took in the market meltdown, attention is turning toward what could well be the next crisis: agriculture.

The primary reason that agriculture is gaining attention is the basic imbalance in supply and demand: populations continue to expand and food production continues to decline. The Economist states that there are other causes for the imbalance, as well:

• Changing appetites. As economies gain strength, there’s a tendency to adopt a more Western diet.
• Rising incomes in emerging markets. Richer citizens can afford to eat more food.
• The competition of land between the development of biofuels and food crops and the decline in yield growth in cereals.

Food prices have risen 9.8% in the first 10 months of the year and “breakfast commodities” are trading at a 30-year high.

The importance of agriculture is not lost on governments. Agriculture and food security have become the backbone of talks between global leaders as the World Bank increased its spending on agriculture by 50% to $6 billion in 2009. For the first time, the Islamic Development Bank is creating an agriculture department. Lastly, countries like the Philippines and India are throwing government money to farmers to aid them in improving crop production and bumping up efficiency.

The agricultural imbalance opens up investment opportunities for many. ETFs to consider are:

• PowerShares DB Agriculture (NYSEArca: DBA): down 0.6% year-to-date.

• Market Vectors Agribusiness ETF (NYSEArca: MOO): up 53.2% year-to-date

• Market Vectors Hard Asset Producers (NYSEArca: HAP): up 40.5% year-to-date

• E-Tracs UBS Bloomberg CMCI Food ETN (NYSEArca: FUD): up 14% year-to-date

Kevin Grewal contributed to this article.

Comments

[predictorman1000]

I have owned DBA and MOO this year based on the same kind of analysis. The issue is that there are so many other things that are moving faster right now. Also the way all the markets seem to move as one big school of fish effects Ag. Why not wait until we actually do correct (trading faster movers in either direction as we go higher/lower), and then settle in for some long term appreciation (assuming next year is more normal) in Ag?

2009 Nov 24 08:54 AM

[JGL]

The logic of owning agriculture related ETF / Funds etc is clear. However, MOO acts like the stock market and not as a sector any more. DBA does not seem to follow any logic this year.
Then you have (at least) two classes of investors: traders and long(er)-term holders.
For the former there are certainly more "volatile" trades to make (an loose..) money the latter maybe a diversification opportunity? Let's review in five or teny ears!

2009 Nov 25 04:50 AM