China’s Booming Appetite May Create A Surge in Demand For These Agricultural ETF’s
“While most commodities have blasted off, agricultural commodities have lagged the rally. I think that’s going to change in a big way, thanks to a country with a billion hungry mouths and plenty of cash. I’m talking about China. And I have three picks to play China’s growing hunger. Why has agriculture lagged? It boils down to a couple of factors,” Sean Brodrick Reports From Howe Street.
1: Expectations of bumper crops in the U.S. and other countries.
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2: Fears that the global recession would weigh on demand for meat. Since it takes a lot of grain to feed pigs and cows, that in turn weighed on expectations of grain demand.
Brodrick continues writing, “But now, with harvest season upon us, those two fears are fading. Weird weather is dragging down harvests in the U.S. and Australia. And signs of recovery in emerging markets like China are ramping up prospects of meat consumption again. Another factor to consider is the United States is the Saudi Arabia of grain — exporter to the world. As the U.S. dollar slumps lower against other currencies, our grain becomes more affordable for deep-pocketed foreigners. That revs up grain sales … and prices. And who is going to buy a lot of our agriculture products? China!”
Here are 3 ETF’s Sean Brodrick says are the best ways to play China’s demand surge in agricultural commodities.
The PowerShares DB Agriculture Fund (DBA) tracks a bunch of agricultural commodities. To comply with CFTC dictates, the DBA recently expanded from its four holdings of corn, wheat, soybeans and sugar. It revised the fund and added Cocoa, Coffee, Cotton, Feeder Cattle, Kansas Wheat, Lean Hogs, and Live Cattle futures to the mix.
The iPath Dow-Jones AIG-Grains ETN (JJG) tracks soybeans, wheat and corn. Be careful, however — there’s not a lot of volume in this one so entries and exits can be tricky.
The Market Vectors Agribusiness ETF (MOO) tracks a basket of agriculture-related companies including Archer Daniels Midland, Monsanto, Potash, Mosaic, Wilmar and more.
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Here is a detailed look at the 3 ETF’s mentioned below:
The investment (DBA) seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index – Optimum Yield Agriculture Excess Return. The index is a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities â corn, wheat, soy beans and sugar. The index is intended to reflect the performance of the agricultural sector.
| TOP 10 HOLDINGS (DBA) ( 106.66% OF TOTAL ASSETS) |
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The investment seeks (JJG) results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones-AIG Grains Total Return Sub-Index. The fund is designed to reflect the performance of grains. The index is composed of three futures contracts, corn, soybeans and wheat.
The investment (MOO) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the DAXglobal Agribusiness index. The fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the business of agriculture, which derive at least 50% of their total revenues from agribusiness. Such companies may include small- and medium-capitalization companies. It is nondiversified.
| TOP 10 HOLDINGS (MOO) ( 60.77% OF TOTAL ASSETS) |
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