How to Play the Rising Cost of Food With ETFs

August 29, 2009 at 1:00 am by Tom Lydon

Agriculture ETFs The cost of many goods and services have fallen off in this recession, but food prices may wind up being among the first to rebound. As you watch those prices tick up at the grocery store, you can play any potential increases with exchange traded funds (ETFs), too.

Mitchell Hartmen for Marketplace reports that a steep drop in energy prices and a drop in demand has edged food prices lower over the course of the recession. But if you’ve gotten comfortable, this trend could end as soon as the economy recovers, according to the U.S. Department of Agriculture.

Farmers will be paying more for fertilizer and fuel and it’s predicted that this increased cost will eventually make it onto shelves, taking food prices up 2%-3%. A few commodities that could be impacted include:

Soybeans. Tight supply of these beans has the prices of futures edging up already, up 2.2%. Lisa Shumaker for Forbes explains that soybean futures rose 23-3/4 cents to close at $11.14-1/4 a bushel Thursday. The new-crop November contract slipped 1/2 cent to settle at $9.96 a bushel. Strength in the cash market sparked the rally in the nearby soybean contract.

Corn. Corn is in a mixed situation; the supply is high, which has both the supplier and the buyer in a good position. Rick Plumlee for The Chicago Tribune reports that corn prices for December delivery are trading for less than $3.50 a bushel, much less than one year ago.

Sugar. Mark J. Perry for Seeking Apha reports that sugar may be a great value for the producers, but the consumers may not like the taste of higher prices. As a result of trade restrictions on imported sugar coming into the United States at the world price, the U.S. sugar beet producers are benefiting. In the United States, buyers pay twice the amount, 26.6 cents for domestic sugar from beets vs. 13.1 cents for sugar from cane.

Just a few of your ETF options when it comes to playing the agriculture sector: