Higher Food Prices Bane of Farmers, Boon to Agriculture ETFs

As food prices soar, corn and soybeans have tripled in price and they’ve given agriculture exchange traded funds [ETFs] a chance for growth. But in the meantime, other industries are getting killed.

One casualty of higher food and grain costs are the catfish farmers in the South. They have been unable to keep up with the high cost of corn and soy bean feed and have no choice but to drain their ponds.

Among the reasons corn and soybean prices are so high are harvest shortfalls, demand from the Asian middle class, government mandates for corn to produce ethanol and the flooding in the Midwest, reports David Streitfeld for The New York Times.

Feed has become more than half the total cost for raising catfish, compared to one-third for pork and beef production. Catfish has become vulnerable as the economics went astray and other industries will fall victim as well.

It’s a bonanza for corn and soybean farmers, but not so much for consumers.

ETFs that could get another growth spurt as resources become more scarce:

• PowerShares DB Agriculture (DBA), up 12.4% year-to-date
• iShares GSCI Commodity Index (GSG), up 28.6% year-to-date
• E TRACS UBS Bloomberg CMCI Agriculture (UAG), up 3.4% since April 4 inception

Comments

[Reticon:]

It was relatively flat today, and seems now to have hit bottom. There is only so little grain farmers will take for their stocks. I am curious about the pattern seekers calling this a "double top" ... would that kind of analysis even be relevant when we are talking about a grain ETF? When weather is supposedly to blame for the current downtrend? What does a financial chart pattern predictor have to do with the weather? Even my weatherman is only right half the time.

2008 Jul 22 11:01 PM

[yuman:]

Reticon,
By double top, I assume you mean 43 for DBA. Chartists are like weathermen. One sees double top, another sees support at 34, still another sees 35. Today it broke the 200-day moving average, which is supposedly bearish.
On the fundamental side, the cost of production, energy, fertilizer and seeds, have gone up compared to last year. The demand only increases. Unless you predict a bumper crop, the bull won't die.

2008 Jul 23 12:35 AM

[buyitcheap:]

DBA will sell off further, as the wheat report yesterday indicated favorable weather ahead. google: wheat report July 21, 2008 and you'll see it. A good play is AGA (short ag) but volume is lousy. This is typically the time of year where ags do get a little soft on price anyway and given how far they've run up, a downturn is to be expected.

2008 Jul 23 07:22 AM

[Tim Plaehn:]

Has anyone noticed that corn is off 25% from the peak of a couple of weeks ago and still falling. Another bubble burst?

2008 Jul 23 08:58 AM

[vitaminc:]

Tim, the trade goes like this: oil price down -> demand for Ethanol down -> demand for corn down -> corn price down.

But given the inflation and limited production of grain based products in other countries, I think food price will continue to go up in the intermediate run.

2008 Jul 23 05:05 PM