Higher Food Prices Feed Commodity ETF Strength

September 6th at 4:28pm by Tom Lydon

The worst drought in over 50 years is hurting the Midwest and will likely begin to filter into food prices. Compounding the problem are higher commodity prices, which could equal a lucrative investment in agriculture related shares and exchange traded funds.

World food prices are facing pressure as evidenced by  The World Food Bank,which just reported that global food prices have jumped 10%. This can be severe to citizens in emerging and developing nations, who spend up to 40% of their income on food. As oil prices tick up, the only factor docking inflation pressure is the slow economic activity, Bill Witherell for Wall Street Pit wrote.

This opens up the possibility for commodity focused ETFs to rally, such as the PowerShares DB Agricultural Fund (NYSEArca: DBA). This highly liquid fund has $2.1 billion in assets and has gained about 17% over the past quarter. DBA is up 5% year-to-date. Another option is the Teucrium Corn Fund (NYSEArca:CORN) which has rallied up 41% over the past three months, and gained 23% year-to-date. [Corn prices Lead Ag ETFs on Drought Forecast]

The U.S. Department of Agriculture has projected a shortfall for the United States corn crop, as well as that of Argentina and Brazil. Soybeans are also facing a shortage. Corn and wheat supplies are also stretched in parts of Eastern Europe. [Corn, Ag ETFs Rocket on Supply Concerns and Drought]

Furthermore,the average price of food staples is anticipated to double over the next 20 years. It has been predicted that events such as droughts, floods and bad harvests will also become more common as a result of climate change, which will lead to regular and dramatic jumps in prices in the future. [Ag ETFs: Stocks or Futures?]

PowerShares DB Agricultural Fund

Tisha Guerrero 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.

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