Hunger for Food May Feed Commodity ETFs
November 5th 2008 at 12:00pm by Tom Lydon
The hidden value in necessities may be the driving force in the attractiveness of certain exchange traded funds (ETFs).
Let’s face it, everyone has to eat, regardless of economic conditions. With population growths in emerging market countries, extended life expectancies and an overall desire for more food by consumers, the demand for food will continue to increase, which in turn, will cause an increase in demand for staple commodities such as corn, soybeans, wheat and sugar. This domino effect could lead to an increase in value for related ETFs, such as agricultural ETFs.
Michael Kahn of Barrons states that all four of these staple commodities have lost a significant amount of value this year. This decline in value, along with other factors, has Kahn making a bullish case.
Does this suggest that agricultural ETFs are bullish? Only time can really answer this question. After all, one must keep in mind that although this demand for commodities will most likely continue to increase, there are other factors, a rising value in the dollar, just to name one, that could curtail this demand effect on the price of commodities.
Our strategy is to use the moving average to determine when we should be in. Right now, this fund is below both its 50-day and 200-day moving averages. When it crosses those points, it might be worth considering whether it’s right for your portfolio.
PowerShares DB Agriculture (DBA) is an index of corn, soybeans, sugar and wheat futures. It’s down 16.8% year-to-date.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.