Four (4) ETFs To Cash In On Rising Food Prices (MOO, JJA, JJG, MON, POT)
Kevin Grewal: Supply shocks over the past two years in wheat and corn continue to take their toll on food prices, which will likely provide positive price support to the iPath Dow Jones-UBS Agriculture Subindex Total Return ETN (NYSE:JJA), iPath Dow Jones-UBS Grains Subindex Total Return ETN (NYSE:JJG), UBS E-TRACS CMCI Food T ETN (NYSE:FUD) and Market Vectors Agribusiness ETF (NYSE:MOO).
On the production side, both wheat and corn have taken a major hit over the past couple of years as natural disasters and crop disease have plagued some of the major producing parts of the world. Russia, for example, witnessed a severe drought over the past few years which has curtailed production of wheat, forcing the Kremlin to halt exporting the commodity to ensure that domestic supply can meet domestic demand. Similarly, the current drought in Texas is starting to take its toll on corn production keeping prices of corn elevated. In fact, the Agriculture Department expects a national average corn yield in the US of 153 bushels per acre, nearly 4% lower than its earlier forecasts.
Furthermore, excessive rainfall last year in Canada hindered planting and harvesting in the region which negatively impacted wheat supplies. Lastly, production has taken a toll in parts of Africa due to a disease known as wheat rust UG99, which has completely destroyed numerous crops across the continent.
Global demand for wheat and corn are also providing positive price support for the agricultural-based commodities. Growing populations around the world are supporting organic demand for food, while increased wealth in emerging markets and the desire to live a Western lifestyle are pushing up overall demand for food and increased demand for corn used for animal feeds.
In addition, demand for corn continues to be supported due its staple use in the production of ethanol and will like continue to have support from this alternative energy source as the desire to utilize clean energy remains a priority around the world.
At the end of the day, supply and demand imbalances are pushing wheat and corn prices higher (both staples in the production of food). Although food producers are likely to increase production to meet increased demand, this will take years to implement, and therefore prices are likely to remain high.
As previously mentioned, from an investor’s perspective, some ways to play this include:
- iPath Dow Jones-UBS Agriculture Subindex Total Return ETN (NYSE:JJA), which allocates 27.35% of its asset base to corn and 14.2% to wheat.
- iPath Dow Jones-UBS Grains Subindex Total Return ETN (NYSE:JJG), which allocates 40.76% of its assets to corn and 21.17% to wheat.
- UBS E-TRACS CMCI Food T ETN (NYSE:FUD), which seeks to replicate the performance of a basket of futures contracts from the agricultural and livestock sectors
- Market Vectors Agribusiness ETF (NYSE:MOO), which is an equity play and includes companies such as Potash Corp of Saskatchewan (NYSE:POT) and Monsanto Company (NYSE:MON).
Written By Kevin Grewal From ETF Tutor Disclosure: No Positions
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.