Three ETFs To Play Rising Rice Prices (DBA, JJA, RJA, MON, POT)
Kevin Grewal: Poor weather conditions around the world may result in a supply shock, pushing rice, grain and other agricultural-based commodities higher and giving positive price support to the ELEMENTS Rogers Intl Commodity Agri ETN (NYSE:RJA), the PowerShares DB Agriculture Fund (NYSE:DBA) and the iPath DJ-UBS Agriculture TR Sub-Idx ETN (NYSE:JJA).
According to the UN Food and Agriculture Organization, Thailand witnessed the its worst flooding in more than 50 years resulting in nearly 13 percent of the nation’s rice crop to be destroyed. This is vital to global supply as that Thailand accounts for more than 30 percent of global rice exports.
Further supply constraints are expected to dwell in South America as the region is witnessing La Nina weather patterns. La Nina is characteristic of low rainfall and dry weather, which could result in hindered rice and grain production.
Lastly, global production is expected to be curtailed by the weather witnessed in Arkansas. Arkansas, which accounts for more than 40 percent of US output, faced flooding in the beginning of the year and a drought through the summer, allowing the USDA to forecast a 32 percent reduction in crop.
On the demand side, consumption of staple commodities like rice and grains is expected to remain insatiable. The world population continues to grow and rice remains a major player in most diets around the world. In fact, according to a Bloomberg article, consumption of rice has increased every year since 2006 and economic growth in the Group of 10 countries is expected to accelerate at a higher rate in 2012 than 2011, which should translate to a boost in consumption.
In a nutshell, supply shocks around the world are expected to boost rice and grain prices as demand remains steady and grows, despite excess supply that could potentially be brought to the global market by India.
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.