Agribusiness exchange traded funds give investors exposure to the constant rise in food consumption, as populations multiply and emerging middle classes can afford to purchase more. Demographic shifts over the next 20 years support the case for the Market Vectors Agribusiness ETF (NYSEArca: MOO).
“MOO offers a serious way for investors to address these concerns. It provides global exposure to the agriculture industry by investing in companies that sell agricultural equipment, chemicals, and seeds. Agriculture commodity prices have a significant impact on the performance of most agriculture businesses because their customers’ income and demand for inputs, such as tractors and fertilizer, is tied to grain prices,” Alex Bryan for Morningstar wrote.
As for agricultural products specifically, Jim Rogers notes that inventories are near historic lows as our global economy has been consuming more than we have been producing for nearly a decade. There is also a disturbing trend of a shortage of farmers that will impact these assets, reports Jared Cummans for Commodity HQ. [Ag ETFs: Stocks or Futures?]
“With all commodities, the most important factor is supply and demand,” Rogers stated. After all, a commodity is only worth what someone will pay for it and that price has a tendency to rapidly change over time. [Why Grain Investors Should Look at Agribusiness ETFs]
However, commodity prices are not the whole story. For example, a drought or flood can impact a harvest and cause the prices of a commodity to increase. In turn, this would reduce a farmers’ income and their demand for fertilizers, chemicals and equipment. MOO can help investors find exposure to global food consumption, but can also expose them to the volatility that the industry undergoes. [Ag ETFs: Farmland Prices Spike]
For the long term, however, demand is the ultimate driver of MOO. However, rising demand is not synonymous with rising grain prices because advances in technology can improve crop yields, reports Alex Bryan. MOO gives investors the means to invest in the aforementioned, along with the commodity aspect.
Market Vectors Agribusiness ETF
Tisha Guerrero contributed to this article.