Why Investors Are Planting Their Assets in Agriculture

Includes: DBA, DBC, GSG
by: Tom Lydon

The long-term fundamentals looks rather promising for agribusiness, along with related agriculture ETFs that tracks the sector. The human population is still expanding and demand for high-protein sustenance is increasing from a growing middle class in the emerging markets.

Food security remains a major issue, writes Richard Barely for The Wall Street Journal. Prices for basic crops spiked before the financial crisis, which triggered riots in some countries, and millions around the world are still undernourished.

If countries like China and other developing countries switch to more meat consumption, grain production would have to keep up to feed livestock and better technology would have to be implemented to boost crop yield. Additionally, biofuel production will reduce the land available for food crops.

Corn futures rallied as hot weather persisted in the corn belt, pushing past $4 a bushel for December deliveries, reports Ian Berry for The Wall Street Journal. Wheat futures prices jumped more than 6% on concerns about the how the weather may affect crops in Europe and Russia.

A financial regulation bill that will help moderate spikes in grain and food prices is set for a final vote in the Senate, writes Philip Brasher for Zanesville Time Recorder. The bill would make the buying and selling of derivatives more transparent and discourage speculative trading in the commodities market as seen in 2008. However, some warn that the regulation may diminish the market’s high liquidity.

The Organization for Economic Cooperation and Development (OECD) has stated that “the weight of evidence clearly suggests” that index funds didn’t cause the surge in commodity price.

  • PowerShares DB Agriculture (NYSEARCA:DBA): Wheat is 12.6%. Corn is 11.8%.
  • iShares S&P GSCI Commodity-Indexed Trust (NYSEARCA:GSG): Agriculture accounts for 16% of the fund
  • PowerShares DB Commodity Index Tracking (NYSEARCA:DBC): Wheat is 5.6%. Corn is 5.66%.

Max Chen contributed to this article.

Disclosure: None

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