Food prices are affected by the daily movements within markets and related exchange traded funds (ETFs) as the international commodity prices are driven by supply and demand, meaning extra volatility.
Commodities have been enjoying a recent run-up that has many consumers fearing a repeat of summer 2008. In the last three months, PowerShares DB Base Metals (DBB) gained 10%, United States Oil (USO) rose 14% and United States Gasoline (UGA) jumped 23.8%.
What we saw was a number of uptrends in this area in which many of these types of funds crossed or were approaching their long-term trend lines. But if recent news is any indication, the trend may be petering out. If it is winding down, you can protect yourself and any gains you might have made in the run-up by watching the trend lines. When a fund drops below its 200-day or 8% off the recent high (whichever comes first), sell it.
Having an entry and exit strategy, particularly when it comes to volatile areas of the market, can help guide you as to when to buy and when to sell. More importantly, it can help you remove your emotions and make decisions based on the market’s messages.
Meanwhile, The Economist lays out the ups and downs in food prices based upon inflation in two timeframes: the past three months and the year through February 2009. The evidence is emerging that the cost of food from country to country is affecting some countries more than others.
Despite a big fall from peaks in 2008, food-price inflation remains high in places such as Kenya and Russia, while China has experienced a drop in high commodity prices that is passed along to the consumer.
Both the United States and France are experiencing the same pattern as China, while Kenya, Russia and Pakistan are getting hit hard by inflation of commodity prices.
High food costs could impact agriculture ETFs as demand in certain countries and the adoption of a Western diet keeps costs at high levels.
- PowerShares DB Agriculture (DBA): down 2% year-to-date
- SPDR S&P Emerging Europe (GUR): up 20.7% year-to-date
For more stories on agriculture, visit our agriculture category.
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.