Utilizing the Agricultural ETF (NYSEARCA:JJG) should be an important piece in your portfolio going forward. Shifting world demographics, pollution, politics, and potential food and/or resource wars all play a role in analyzing the fundamental story.
World demographics in emerging, formerly largely agrarian, societies such as China and India, are rapidly changing through urbanization driven by a desire for higher-paying jobs. We are witnessing the results of mega cities in Asia causing a reduction of land traditionally used for farming.
As these societies trade up the food chain for a higher-protein diet, the stresses on freshwater and grain resources rise dramatically. Meat production requires 6-20 times more water than grain production. Polluted water supplies leaves less water for irrigation.
These population shifts aren't just happening in China and India, but are now manifesting themselves throughout the emerging world.
Politics now becomes a potentially big market mover. Countries are no longer passive about having outside players come in and buying up indigenous resources such as farmland, mineral rights or water resources. There is a worldwide resource grab happening with no international referee.
Argentina has recently nationalized its oil assets; both Iceland and Brazil have rejected overtures from China to invest in what is deemed resource related projects. In 2010 Russia fired the first salvo in future food wars when it curtailed food exports due to drought that significantly reduced its wheat crop.
Every head of state, dictator, or ruling elite since the Pharaohs is keenly aware of the one constant, feed the mob or be ruled by the mob. We now live in a world of turf warfare.
What's next? How does a conservative investor deploy a strategy that works in a volatile world where grain prices dropped by 50% from the 2008 high? The answer is: intelligent risk management.
We have employed a long time frame strategy of scaling into positions on 15-20% dips utilizing the JJG ETF, and then selling rallies of 10% to continually lock in profits on the rebounds. The JJG ETF has the advantage of being less volatile than playing what seem to be the vagaries of the futures markets for the private wealth crowd, however it requires a lot of discipline. We endeavor to be patient and let the market come to us and trade only on our terms.
The specific make-up of the JJG is a seemingly balanced portfolio of grains which are almost evenly split between soybeans and corn, with an underweighting of wheat. The soybeans have traditionally led grain bull markets, however in the last hyperbolic bull it was the wheat that gave this ETF lift.
There is a price to pay for the convenience of using any ETF, which requires a modicum of timing, so the manager doesn't eat up all your profits with fees.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in JJG over the next 72 hours.