Agriculture exchange traded funds can provide a convenient way for investors to play food shortages and higher commodity prices for staples such as wheat, corn, soybeans and sugar. The agriculture subsector is also a nice compliment to any commodity play within a portfolio.
Exchange traded funds and notes tracking the sector include PowerShares DB Agriculture ETF (DBA), iPath Dow Jones-UBS Agriculture ETN (JJA) and ELEMENTS Rogers International Commodity Agriculture ETN (RJA).
“Agricultural commodities have gained momentum recently for a few reasons. First, the subsector has posted standout returns, as demand for foodstuffs and biofuels have handily outstripped supply. Second, increasing agricultural commodity prices have driven investor interest in pure-play agricultural commodity products,” Morningstar analyst Abraham Ballin writes in a profile of the iPath ETN.
An agricultural commodity investment can also help diversify a portfolio due to the lower correlation to equities. Furthermore, an agricultural investment can enhance other commodity investments because the subsectors are not closely correlated to one another.
DBA is one of the most widely traded agriculture ETFs. The fund has about $2.3 billion in assets.
Food inflation has caused some of the swelling in this subsector, as corn and soybean prices had hit 30-month highs earlier in the year. Meanwhile, The United Nations Food and Agriculture Organization recently suggested another food crisis could materialize as grain prices are on the rise.
Another approach to the agriculture sector is to play not only the food side, but the production side. A fund that holds the equipment, fertilizer and seed stocks that grow the crops is ideal. These prices will rise with the agriculture prices and present less volatility. Market Vectors Agribusiness ETF (MOO) has seen net inflows of $3.6 billion this year.
PowerShares DB Agriculture ETF has been lagging U.S. stocks in 2011. The fund is down about 7% year to date.
PowerShares DB Agriculture ETF
Click to enlarge
Tisha Guerrero contributed to this article.