Rising food prices lift agriculture ETFs

These funds can capitalize on rising crop prices and recognizable names in the industry.

By TheStreet Staff Feb 2, 2011 12:14PM

TheStreetImage: Combines in field (© Mark Karrass/Corbis/Corbis)By Don Dion, TheStreet


The agriculture industry has been the talk of Wall Street for months as crop prices ascend to sky-high levels, leading investors and consumers to revisit memories of the food cost-fueled global unrest that stole headlines in 2008.


Prices for a number of popular crops are on the verge of touching records. However, the current rally doesn't appear to show signs of cooling in coming weeks. On the contrary, with developed markets on their respective paths to recovery and emerging markets continuing along their breakneck growth trajectories, few factors appear to stand in the way of the food industry's demand picture.


Combined with persistent reports of supply issues facing top producers, this situation appears to signal that crop prices and the farming industry as a whole could hold onto these gains as we head further into 2011.


ETF investors have a number of tools that allow them to gain from the action taking place within agriculture. From a futures- or an equity-based perspective, it is possible to take advantage of either rising crop prices and target some of the most recognizable company names from this corner of the marketplace.

There are a bevy of options for investors looking to take a futures-based approach. For instance, investors can use any one of a number of exchange-traded notes, or ETNs, to track crop price growth on an individual basis.


With these funds come challenges, however. The volatility that comes with investing in these single-crop products can be overwhelming, subjecting investors to gut wrenching swings. The iPath Dow Jones Sugar Total Return Subindex ETN (SGG) is a prime example. SGG has had a yo-yo-like performance during recent months, hitting all-time lows and all-time highs. Given this type of wild nature, I urge long-term, conservative investors to avoid this corner of the ETF market.


Instead, a well diversified futures-based ETF such as the PowerShares DB Agriculture Fund (DBA) will provide investors with far more stable exposure to crop prices over the long term. Designed as a catch-all, DBA exposes investors to a basket of futures contracts ranging from wheat to cattle.


Although it may not see the same explosive upward action, by spreading its exposure across the industry as a whole, investors holding DBA will be better protected against headwinds which may crop up in the future.

Investors hesitant towards the idea of using futures contracts to track the performance of agricultural goods may be more comfortable holding an equity-based fund such as the Market Vectors Agribusiness (MOO).


Like DBA, MOO will benefit as food prices stick to their upward trajectory. Long-term economic growth bodes well for this fund as well. As nations around the world recover, and emerging populations expand, increased crop yields will become a necessity.


In order to satisfy rising global food demand, the farming industry will rely on companies such as Deere (DE), Monsanto (MON) and Potash of Saskatchewan (POT) for equipment, chemicals and other essential goods and services. MOO is ideally designed to target this slice of the market. The fund boasts exposure to household names including Archer Daniels Midland (ADM), POT, Mosaic (MOS) and Syngenta (SYT).

The agriculture industry is sure to remain a closely watched aspect of the market as nations seek out ways to handle rising food prices. MOO and DBA are two ETF options investors will want to consider when seeking out appropriate ways to target and profit from this sector.


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Feb 2, 2011 5:41PM

Have some food saved for a rainy day.  Emergency Essentials has been “helping people prepare” for over 23 years. beprepared (dot) com/default.asp?sid=webnews

Feb 2, 2011 2:38PM

Well look out citizens of the United States, our government and food is going to sky rocket.  We have a lot of poor citizens and malnourished kids in the good old usofa.  We have a world of hungry people and of course our federal government sends them all of our wheat and corn they can.  I dont think our representatives or President care about our citizens.


I look at maybe different then others I think the U.S. citizens should come first all the food grown in the U.S. should go to our people first then if there is any left over share it with other countries.  If the people of the world want their countries to be ran fair and good to them they need to do what we did over 200 some years ago revolt.  They should revolt and set up a government for the people which our government was set up for but doesn't seem to work that way now.

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