Commodities Could Be King As IFPRI Report Underlines Shortage

by: World Market Pulse

More and more investors are now trying to include commodities in their investment portfolios as there is an developing nation demand increases in Asia and other parts of the world offering a good wealth creation opportunities for the global investor. In fact agricultural commodities are poised for an exponential rise if a recent report released by the International Food Policy Research Institute (IFPRI) is to be believed which has projected that world grain prices could as much as double by 2050 as population growth and climate change put growing pressure on resources.

Corn prices could double while the cost of rice could increase 31.2% as production struggles to keep pace with the world's rapidly expanding population in the face of rising temperatures, research from the International Food Policy Research Institute found. While global food prices have fallen in the past century, the report said it expects this trend to reverse. "Increasing demand driven by population and income growth is greater than productivity growth, which is hampered by the negative productivity effects of climate change," it said. With the world's population expected to grow to more than 9 billion by 2050 according to United Nations forecasts, finding ways to increase production without upping greenhouse emissions is becoming increasingly pressing.

Corn To Double:
Corn prices could double by 2050 as population growth and climate change put growing pressure on the resource. Although the report suggests that based on current estimates, if corn yields can increase by 2% annually up to 2050 in the countries that produce 80% of the world's output now, corn price increases could be limited to 12%, rather than more than 100%. Corn is an essential commodity as earlier positive waves in corn prices have triggered a spike in both rice as well as Ethanol prices.

Corn Prices And Rice Interest
: Commodity traders and market experts keep a keen eye on the prices of both rice and corn as experts feel that the rising corn prices could act as a catalyst for the rice industry with a possible increase in demand for rice as animal feed. Corn futures had earlier surged to two-year highs as lower-than-expected yields from the fall harvest ignited concerns over supplies for the coming year.

Corn Prices And Ethanol Surge: According to Bloomberg data, Volatile corn prices and bad bets on the grain contributed to the bankruptcy of at least a dozen ethanol producers over an 18-month stretch that started in October 2008, which included VeraSun Energy Corp., once the largest American distiller. But with ethanol at these prices, producers should buy corn right now to lock in margins and hedge against corn prices going higher over the next several days.

Corn investment options:

While companies such as Corn Products International Inc. (CPO), Archer Daniels Midland Co. (NYSE:ADM), and Bunge Ltd. (NYSE:BG) stand to benefit from rising food costs, particularly increases in the price of corn. As far as the Exchange Traded Fund's are concerned the Teucrium Corn Fund (NYSEARCA:CORN) seeks to track the price fluctuations of corn while the Market Vectors Agribusiness ETF (NYSEARCA:MOO) and PowerShares DB Agriculture Fund (NYSEARCA:DBA) offers broader exposure to the agricultural sector.

Corn Fund (CORN): The underlying holdings of this fund consist of corn futures contracts traded on the CBOT.
Expense Ratio: 1.00%

Market Vectors-Agribusiness ETF (MOO):
The Index provides exposure to publicly traded companies worldwide that derive at least 50% of their revenues from the business of agriculture. As such, the Fund is subject to the risks of investing in this sector.
Expense Ratio: 0.59%

PowerShares DB Agriculture Fund (DBA): The Index is a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities. The Index is intended to reflect the performance of the agricultural sector.
Expense Ratio: 0.75%

Agriculture Commodities Outlook 2010 and Beyond: Analysts and agriculture experts are bullish over the future of the agricultural commodity sector on weak global production and high demand in addition to the falling US Dollar. Meanwhile a United Nations Food and Agriculture Organization Tuesday revised up its monthly food price index to a 27-month high reaching 197.13, up 4.4% from September and the highest since July 2008, mainly due to increases in global cereals, sugar and soybean prices.

The FAO index is a monthly measure of changes in international prices of a basket of commodities and is closely tracked by analysts and investors as a global benchmark for food price trends. The FAO food price index is inching towards the record high of 213.5, reached in June 2008. Adverse weather, either too dry or too wet, has affected major producers and exporters around the world, from Russia and Ukraine to Canada and the U.S., Germany, Australia, Pakistan and Southeast Asia.

ETF Options for Wheat Investment

Although there are no wheat-specific ETFs, some of the ETFs worth considering to play the current wheat rally include:

1. ELEMENTS Rogers Intl Commodity Agric ETN Profile (NYSEARCA:RJA): The Index represents the value of a basket of 20 agricultural commodity futures contracts and is a sub-index of the Rogers International Commodity Index. The top holdings include: wheat (20%), corn (14%), cotton (12%), and soybeans (9%).

Expense Ratio: 0.75%

2. ELEMENTS MLCX Grains Index TR ETN (NYSEARCA:GRU): The index is designed to provide a benchmark for the grains sector and for investment in commodities as an asset class. The Index comprises futures contracts on four physical commodities: Corn, soybeans, soybean oil and wheat. The Index is a total return index; thus it is designed to reflect the performance of a fully collateralized investment in the index components. The top holdings are: wheat (47%), corn (36%), soy meal (10%), and soy beans (8%).

Expense Ratio: 0.75%

Some of the other broad Agriculture related ETFs that include soft commodities having wheat futures contracts in varying amounts include:

* PowerShares DB Agriculture (DBA): Wheat is 12.6%

* PowerShares DB Commodity Index Tracking (NYSEARCA:DBC): Wheat is 5.6%

Cotton Investment Options:
Cotton is currently the king in the commodities market.Some of the cotton investment options include:

The iPath Dow Jones-AIG Softs Total Return Sub-Index ETN (NYSEARCA:JJS): The Dow Jones-UBS Softs Subindex Total Return is a multiple-commodity sub-index consisting of the contracts included in the Dow Jones-UBS Commodity Index Total Return related to soft products. Contracts for three commodities are currently included in the Dow Jones-UBS Softs Subindex Total Return: coffee, cotton and sugar.

Expense Ratio: 0.75%

The iPath Dow Jones-AIG Cotton Total Return Sub-Index ETN (BAL):
The Dow Jones-UBS Cotton Subindex Total Return is a single-commodity sub-index currently consisting of one futures contract on the commodity of cotton.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.