Hidden Commodity Behind Global Unrest (JJG, DBA)

Much of the focus on the unrest in the Middle East, particularly with Egypt, is what the ramifications are for terrorism and crude oil prices.

From an investment standpoint, that’s forward thinking. Some investors may be interested in looking at defensive stocks, or weapons makers, or — of course — oil companies and crude oil futures… But they may be overlooking something.

They may be forgetting what sparked the whole uprising to begin with.

Food. More specifically, food prices.

It’s more than a little ironic that the villager who was selling vegetables without a license in Sidi Bouzid, Tunisia, set himself on fire after a police officer confiscated his produce and spat in his face, was the catalyst for the surprise uprising in Tunisia.

His name was Mohamed Bouazizi, and he was 26 years old.

Economists and analysts are naming Tunisia and Egypt the first victims of the global food crisis, and that they might not be the last.

From New Scientist:

What seems clear is that surging food prices helped trigger both uprisings and protests elsewhere in north Africa. The region depends on bread and imports half of its wheat. So when world wheat prices soared by 50 per cent in 2010, Egypt massively increased spending on the cereal to sell to its poorest citizens as subsidised [sic] bread. Yet bread prices rose 25 per cent on private markets in Cairo.

This isn’t the first time food prices have hit the main stage, either.

(By the way, if you want to stay on top of market-moving events like this, sign up for Smart Investing Daily and let me and my fellow editor Jared Levy keep you up-to-date with our easy-to-understand investment articles.)

Back in 2008, in the first half of the year, some 11 people were killed fighting over bread in bread lines where bakeries had only a limited supply.

As commodity prices were booming, bakers who were supposed to be making subsidized bread for the poor were selling their wheat on the black market or to private bakeries for up to 10 times the subsidized price.

The result was a severe shortage that resulted in deaths and angry poor people.

There was unrest then, as well, quelled only by a huge increase in subsidies for things like bread. But one Egyptian lawyer interviewed by USA Today back in April 2008 said, “People in Egypt may be considered passive or silent, but there’s a limit to this. And when they reach that limit, one day there will be a popular explosion.”

That statement has been made plain by the protests and demonstrations in Tahrir square.

And as noted before, this could only be the beginning. That USA Today article, “Tension in Egypt shows potency of food crisis,” reported back in 2008 that 37 countries face a food crisis, according to the United Nations’ Food and Agriculture Organization.

Back then seven other countries suffered food riots, including Haiti, Ivory Coast and Indonesia.

The FAO now says that food prices have reached an all-time high, even higher than the spikes that brought about the riots in 2008.

Investing in agricultural commodities is no longer just a trend, it’s a long-term boom. These tensions are not going to go away. Indeed, food prices will stay high for at least another six months, until we see another harvest.

That spells no relief for poor and hungry countries.

You can certainly expect crude oil prices and defensive stock prices to climb over this time, too. But look at what’s happened to some agricultural commodities leading up to today’s continued unrest.

Wheat Chart
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This is a six-month chart of March futures for wheat and corn (corn is in green with prices on the left). Look at the massive increases since mid-November 2010… Wheat has climbed more than 35%, and corn has climbed almost 29%.

In response, look at what some agricultural investments have done over the same time period.

iPath Dow Jones UBS Grains ETN Chart
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This six-month chart shows the iPath Dow Jones UBS Grains ETN (NYSE:JJG) and the PowerShares DB Agriculture ETF (NYSE:DBA).

I first told you about these two last month, and I called for a breakout in both in my Smart Investing Daily article from mid-January.

We started tracking JJG and DBA on Jan. 24, and since then, they have climbed 4.49% and 3.33% respectively.

With continued unrest and predicted high grains prices for at least the next six months, these two agricultural investments may still be an opportunity for you. JJG and DBA could eventually climb 33% based on the average rise in an upside breakout from the Broadening Descending Wedge formation I highlighted in that mid-January article.

There’s still plenty of potential gains to be had from these two.

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.

Article brought to you by Taipan Publishing Group, www.taipanpublishinggroup.com.

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