Agriculture: Four ETFs To Play The Surge In Meat Prices (COW, MOO, PAGG, DBA, MON, POT, DE)

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June 7, 2011 1:23pm NASDAQ:PAGG NYSE:COW

Kevin Grewal:  Imbalances in supply and demand continue to take its toll on food prices as the price of meat continues to rise, giving positive support to the PowerShares DB Agriculture Fund


 (NYSE:DBA), the iPath Dow Jones-UBS Livestock Subindex Total Return ETN (NYSE:COW), the Market Vectors Agribusiness (NYSE:MOO) and the PowerShares Global Agriculture Portfolio (NYSE:PAGG).

According to the United Nation’s Food and Agriculture Organization’s meat index, beef and sheep prices are at an all time high and poultry and pig meat costs are on the rise. On the demand side, demand in much of the developed world like the US remains intact, while demand in the developing world for meat continues to rise.  According to the US Department of Agriculture, demand in Asia, in particularly South Korea, Hong Kong and China continues to rise.  Furthermore, demand is expected to remain elevated in the near-term future as disposable income in developing nations continues to increase.

 On the global supply side, weather conditions around the world have taken a toll on production, putting a constraint on supply.  Additionally, declines in cattle inventories will eventually diminish the pool of cattle available for placement which, in turn, will decrease the number of fed cattle available for slaughter.  Lastly, it takes nearly two to three years to substantially increase herd so production will likely remain lower than demand. 

As mentioned above, four ways to capitalize on increased meat prices include:

  • PowerShares DB Agriculture Fund (NYSE:DBA), which holds futures contracts in feeder cattle and lean hogs.  DBA allocates nearly 14.8% of its assets to futures in cattle and 8.1% to lean hog futures.
  • iPath Dow Jones-UBS Livestock Subindex Total Return ETN (NYSE:COW) seeking to replicate the performance of the Dow Jones-UBS Livestock Subindex Total Return Index, which allocates 59.27% of its assets to cattle and 40.73% to lean hogs.
  • Market Vectors Agribusiness (NYSE:MOO) which tracks companies that are involved in the agriculture business.  Top holdings include seed giant Monsanto (NYSE:MON), fertilizer king Potash Corp. (NYSE:POT) and agricultural machinery maker Deere and Co. (NYSE:DE). 
  • PowerShares Global Agriculture Portfolio (NYSE:PAGG) seeks to track companies involved in the agriculture business as well, but with a more dispersed weighting formula that favors international companies and appears to allocate a larger percentage of its assets to fertilizer and chemical companies than MOO.

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.


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