Grains: 2010's Preferred Commodity

 |  Includes: AGCO, DE, IOO, MOO, RJA
by: Beacon Asset Managers

The agribusiness sector, measured by the Market Vectors Agribusiness ETF (NYSEARCA:MOO), posted a bumper crop or return in 2009, up nearly 60% or nearly 80% from the March 2009 lows.

We are strong supporters of Agriculture as an undervalued investment theme within the current 'Generational Opportunity'. We currently hold positions in Deere (NYSE:DE), AGCO (NYSE:AGCO) and Market Vectors Agribusiness ETF in our model Beacon Master Portfolio.

One area that has been left behind in the current commodity rally are the agricultural softs, or the grains in particular. The chart below shows the relative of the Rogers International Commodity Agriculture ETN (NYSEARCA:RJA) versus the S&P Global 100 Index ETF (NYSEARCA:IOO). We can see a sharp underperformance from March to October 2009 against the S&P Global Index. Since then the Rogers fund has been base building and we believe will to return to the top of its two year trading range over the next 12 months. This would result in a 46% out performance.

An other attractive indicator favouring softs is sentiment (bottom chart) towards the grains as measured by Ned Davis Research. It is very attractive given investors excessive pessimism. A further positive could be the 2010 growing season may be fraught with extremely hot conditions or drought in the gain belt in July and August, similar to that of the summer of 1988. (Click to enlarge)
Click to enlarge

Source: Ned Davis Research

Disclosure: We hold a position in Rogers International Commodity Agriculture ETN in our model Beacon Master Portfolio.