Agriculture ETFs Struggle to Stay Green in 2011

July 29th at 12:00pm by Tom Lydon

Exchange traded funds that invest in the agriculture are struggling to stay in the green for the year after trending lower since the winter.

Even with the recent heat wave threatening North America’s crops and a potential drought induced famine in East Africa, agriculture stocks and related ETFs have remained relatively unfazed.

The agriculture experts believe that investors need to be given some more time before they are swayed by valuations again, reports Peter Koven for Financial Post. [ETF Spotlight: Market Vectors Agribusiness]

“It’s going to be a gradual recovery,” remarked Edlain Rodriguez, an analyst at Gleacher & Co.

In the meantime, grain prices are gaining as the sweltering weather threatens to damage crops. Additionally, fertilizer producer Mosaic Co. (NYSE: MOS) has reported robust earnings, which bodes well for other fertilizer firms. [ETF Spotlight: PowerShares DB Agriculture]

However, some observers believe that current crop prices are unsustainable, stating that prices could plunge after farmers increase planting and capitalize on high prices, or due to the U.S. putting a limit on its ethanol subsidy program.

BCA Research projects grain prices will start moving in the second half of the year due to the aforementioned factors, along with lower wheat acreages in the U.S. and a Thai government policy that may raise rice prices. However, BCA believes prices will drop in 2012 as a result of higher production and an eventual limit to the U.S. ethanol policy.

In contrast, agriculture bulls like Bill Doyle of Potash Corp. (NYSE: POT) note that the global population is projected to expand to 9.2 billion by 2050, and food production will have to surge 70% to meet the rising demand.

“The reality is that [grain] demand has grown faster than we have been able to keep up with it. And we don’t see that changing anytime soon,” commented Soren Schroder, head of North American operations at U.S. Bunge Corp. “It’s fair to say that the overall price table of agricultural commodities have come into a new plateau, and we won’t be going back to the prices we saw four or five years ago. Those days are gone.”

  • Market Vectors Agribusiness ETF (NYSEArca: MOO)
  • PowerShares DB Agriculture Fund (NYSEarca: DBA)
  • Global X Fertilizers/Potash ETF (NYSEArca: SOIL)

For more information on the agriculture, sector visit our agriculture category.

Market Vectors Agribusiness ETF

Max Chen contributed to this article.

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.