Cereal stockpiles are set to hit their lowest levels in more than two decades, possibly helping to boost exchange traded funds (ETFs) that are food- and agriculture-related.

This low stockpile will affect the high food prices already witnessed in the markets, and the demand isn’t going to let up anytime soon.

Oh, and just so we’re clear: we aren’t talking about Raisin Bran or Wheaties stockpiles. "Cereals" in this context are grasses that are cultivated for their edible grains or fruit seeds, including maize, rice, wheat, oats and rye.

Even if production is stepped up, prices are not likely to move downward because the stockpiles have fallen off so much. The drop-off has come, despite an increase in production in 2007 and predictions for the world cereal trade to hit a new record in the current 2007-08 season, reports the Associated Press.

Calls for more biofuels, in particular, have strained the cereal supply. These fuels are made from corn, palm oil, sugar cane and other agricultural products.

The global food situation will keep supply and demand tight, possibly helping out the PowerShares Dynamic Food and Beverage (PBJ). Agriculture ETFs could reap the rewards of low demand and high prices, too, including PowerShares DB Agriculture (DBA) Market Vectors Global Agribusiness (MOO).

For full disclosure, some of Tom Lydon’s clients own shares of DBA.

Tags: Agriculture, Corn, DBA, Emerging Markets, Food & Beverage, Retail, Wheat