ETFs: Agricultural Commodities On The Rise (DBA, JJG)

Sara Nunnally:  The financial markets had a horrible day yesterday. There’s no way of sugarcoating it. The Dow closed below 11,900 and both the Nasdaq and the S&P 500 ended about 1.75% lower.

Know what started to climb in after-hours trading?

Grains… Agricultural commodities like corn, wheat and soybeans. This is good news for grains. They had been sliding for a number of days because of lower energy costs. Some stabilization could mean investments in grains are in for a bounce.

I do think corn and wheat will climb from here. Jack Scoville of Price Futures Group is predicting tight corn supplies by September, and that the USDA will need to lower production estimates for wheat.

This news hasn’t filtered down yet.

Two Agricultural Commodities Investments

You may remember me talking about two agricultural investments back in January… The iPath Dow Jones UBS Grains ETN (NYSE:JJG) and the PowerShares DB Agriculture ETF (NYSE:DBA). Both invest in agricultural commodity futures. The JJG was focused on grains exclusively, but the DBA can hold lots of different agricultural commodities.

Right now, the majority of DBA is made up of coffee futures. This isn’t the same mix as when we first talked about DBA, and the ETF is down almost 5%.

It might be time to take this money off the table.

But JJG is a different story.

As of May 31, 2011, this was JJG’s portfolio:

JJG is also down since January — about 4%. But if grains get a bounce here, and grain prices start climbing, this is the investment you want to be holding, rather than DBA.

But here’s the thing to watch. JJG’s chart looks a lot like a futures chart for soybeans. Take a look.

Here’s JJG:

And here’s a chart for soybean futures:

Soybeans have been swinging back and forth for the past six months. One of the reasons for this has been low demand from the investment sector in favor of higher corn investments.

What this means for JJG is that any momentum from a jump in corn has been hampered by waffling soybean prices. On June 30, the USDA will release its Quarterly Stocks and Acreage update. That report could have an impact on where soybeans head from here.

Until then, we’re going to keep JJG on our list unless we see its share price drop to $51. At that point we’ll reevaluate.

P.S. It’s a bit hard to talk about corn and wheat being “down” and ready for a bounce. Wheat is up more than 25% from this time last year. Corn is up an amazing 78% in a year. These kinds of price increases have huge consequences… We’ve seen food riots and even uprisings that have overthrown governments.

This kind of upheaval isn’t over by a long shot. The world is on the edge of a food shortage, and to get ahead of this crisis, you have to have a plan. Safe Haven Investor editor Kent Lucas has one, and everyone should read his letter to get prepared for a food crisis. You can access this letter here.

Written By Sara Nunnally For The Taipan Publishing Group

As Senior Research Director, global correspondent and co-editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities.  Sara Nunnally’s diverse background includes studies in history, computer science, literature and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, Bloomberg and CNBC’s Squawk Box, as well as numerous radio shows around the country.

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