Crop and trade forecasts issued by the U.S. Agriculture Department look promising, which has led many to expect a slow and steady recovery in the agricultural sector, reports Angie Pointer for The Wall Street Journal.

• The USDA has projected that farm income will rise nearly 12% to $63 billion in 2010.
• Food inflation is below 2007-2008 levels, but that’s expected to end this year as prices for meat, milk and other commodities see price increases. [Oil and Gas Plays for Rising Energy Prices.]
• It expects a 9% increase in U.S. beef exports and a 9% rise in pork exports.
• Land planted to cotton is estimated to surge 15%, with U.S. cotton exports expected to increase by 5%, and global cotton consumption could expand by 2.6% this year, according to the USDA.
• The livestock sector could be a driver for economic and jobs growth if the farm economy benefits from the broader economic recovery. [Metals ETFs Are Leading the Charge.]

There are a variety of ETFs and exchange traded notes (ETNs) that can get you exposure to agriculture, whether you want to go broad with a fund that holds a host of commodities or narrow with a cotton fund. Note that ETNs are debt instruments backed by the credit of the issuer. [Differences Between ETFs and ETNs.]

For more information on agriculture, visit our agriculture category.

• PowerShares DB Agriculture (NYSEArca: DBA)

• UBS E-TRACS CMCI Food TR ETN (NYSEArca: FUD)

• UBS E-TRACS CMCI Agriculture TR ETN (NYSEArca: UAG)

• UBS E-TRACS CMCI Livestock TR ETN (NYSEArca: UBC)

• ELEMENTS Rogers Intl Commodity Agri ETN (NYSEArca: RJA)

• iPath DJ-UBS Agriculture TR Sub-Idx ETN (NYSEArca: JJA)

• iPath DJ-UBS Cotton (NYSEArca: BAL)

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG)

Max Chen contributed to this article.

We wrote a report back then, which thoroughly covered the commodities area, from the broad-based funds to the single commodities. From that report, many commodities went on to hit record highs.

How things have changed. Oil, gold, gas and more all have corrected sharply. It’s a matter of great debate now what’s going to happen next. One thing that’s for certain is that the tanking of most commodities illustrates the importance of having an exit strategy. Our own is to exit when a fund is 8% off the recent high or below its 200-day moving average – and most commodities are off their highs by double digits.

Right now, there’s a looming threat of inflation. The government is printing new money by the truckload, which could lead to an inflationary situation down the road. Commodities are often high first, which is why they’re still worth keeping an eye on despite the correction.

Some, like Jim Rogers, say not to count out commodities, now or ever. That’s because the credit crisis is creating an inability for farmers to get loans, which means they can’t grow. This will lead to supply shortages, after which high prices ultimately will follow. Food demand is expected to increase, as populations in emerging markets boom and many of those areas adopt a more western diet. Staple commodities, such as corn, soybeans, wheat and sugar could very well continue to see historic levels of demand. And the assets flowing into such ETFs don’t seem to have slowed much, either.

This fascinating chart from U.S. Global Investors shows how commodities over time might have price swings, but eventually revert to their long-term averages, also known as “mean reversion.” Not one category in this chart has shown any consistency in the nine-year period it tracks. By allocating your assets and remaining diversified, investors can gain some volatility protection.

Oil has been holding steady for a few weeks, around the $40 a barrel mark. There’s a big fight going on now: declining consumer demand that remains far below production, and OPEC can’t seem to cut production enough at this point.

Gas prices are moving up, however. In the last month, the cost of a gallon of gas in Orange County has risen 27 cents. The disconnect between the two can be blamed on refineries, which are operating at their lowest capacity since 1992.

The outlook for gold is mixed. While there’s agreement that prices will probably stay put for now, the question is how high will they go? Some call for $1,500 an ounce, others are expecting as high as $2,000 an ounce.

No one can say for certain where commodities are headed, which is why we so firmly adhere to the trend-following strategy instead of relying on predictions that are often at odds with one another. Many hours have been spent by experts, trying to call which way commodities will go and when. For now, we’re going to wait for the trend to appear. At the moment, it’s simply not there.

• PowerShares DB Agriculture (DBA) is an ETF that contracts on some of the most liquid and widely traded agricultural commodities — corn, wheat, soybeans and sugar. DBA hit a high on Feb. 26, 2008, and has fallen 41.3% since then.

• Market Vectors Global Agribusiness (MOO) tracks the stock-based DAXglobal Agribusiness Index and provides exposure to 40 worldwide companies in five segments: agricultural chemicals, agriproduct operations, agricultural equipment, livestock operations and ethanol/biodiesel production. The top five components, by market weight, include: Mosaic Co. (MOS), Potash Corp. (POT), Monsanto Corp. (MON), Deere & Co. (DE) and Archer-Daniels-Midland (ADM). MOO’s high was on June 17, 2008; it has since declined 54.3%.

MOO made a distribution on Dec. 26 that is not reflected in the chart above.

• ELEMENTS Rogers International Commodity Agriculture ETN (RJA) seeks to replicate an index that represents the value of 20 agricultural commodity futures contracts. RJA’s high was hit on Feb. 26, 2008, and the ETN has declined 44.2% since then.

• For a more diversified energy play, the PowerShares DB Energy Fund (DBE) replicates an index tracking the prices of two different grades of crude oil, heating oil, gasoline and natural gas. The high was reached on July 3, 2008; since then, DBE has lost 64.9%.

• United States Gasoline (UGA) tries to match the percentage increase in the unleaded gasoline futures that trade on the New York Mercantile Exchange. In concept, this fund increases in value by the same amount that gas rises in price at the pump. UGA reached a high on July 2, 2008, but has fallen 64.9% since then.

• iShares Dow Jones U.S. Energy Sector Index Fund (IYE) is as pure a play on energy as you can get with 10 top holdings including: Chevron (CVX), ConocoPhillips (COP), Exxon Mobil (XOM) and Transocean (RIG). IYE has fallen 43.3% since its May 20, 2008, high.

IYE made a distribution on Dec. 23 that isn’t reflected in the chart above.

• iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) is an unleveraged path to investment in Nymex West Texas intermediate crude oil futures. It takes a fixed-weight approach to determining asset allocation of its portfolio. OIL has lost 78.5% since its July 11, 2008, high.

• The SPDR Gold Shares Fund (GLD) and iShares COMEX Gold Trust (IAU) hold gold bullion. GLD and IAU have both lost 10.9% and 11.1% respectively since their highs on March 17, 2008.

• The PowerShares DB Gold Fund (DGL) is based on the Deutsche Bank Liquid Commodity Index and is composed of futures contracts on gold and is intended to reflect the performance of the yellow metal. DGL has lost 12.6% since its March 17, 2008, high.

• Market Vectors Steel (SLX), which launched in October 2006, holds companies involved in the production of steel. Among the top holdings are Rio Tinto (RTP), Arcelor Mittal (MT.AS) and Companhia Vale ADS (RIO). SLX reached a high on May 16, 2008, but has since dropped 69.9%. On the other hand, there are high hopes for steel if President Barack Obama’s stimulus plan goes through. In the last month, it’s advanced 5.4% and moved above its short-term trend line.

SLX made a dividend on Dec. 26 that is not reflected in this chart.

• The iShares Silver Trust (SLV) holds silver bullion. Silver has a wide range of industrial applications, making it particularly attractive when there’s a boom in construction activity, but sensitive to dowturns. SLV has lost 38.3% since its March 5, 2008, high.

• PowerShares DB Base Metals (DBB) is based on an index composed of futures contracts on some of the most liquid and widely used base metals — aluminum, zinc and copper (grade A). DBB has lost 56.8% since its May 4 , 2007, high.

• iShares S&P GSCI Commodity Indexed Trust (GSG) tracks a broad index of 24 commodities weighted according to the proportion of the commodity flowing through the economy. Almost half of the index reflects crude oil, and the balance is split between other energy products such as natural gas as well as agricultural commodities, industrial and precious metals, and livestock. It hit a high on July 2, 2008, and has fallen 66.4% since then.

• An even more diversified commodity play is the iPath Dow Jones-AIG Commodity Index Fund ETN (DJP), which tracks an index that comprises 30% energy, 30% agricultural, 20% industrial metals, 10% livestock and 10% precious metals. DJP’s high was reached on July 2, 2008, but has lost 53.4% since then.

• PowerShares DB Commodity Index Tracking Fund (DBC) tracks the futures for a simplified index of just six commodities: corn, crude oil, gold, heating oil, aluminum and wheat. It hit a high on July 2, 2008, and has fallen 56.5%.

DJP made a distribution on Dec. 15 that is not reflected in this chart.

For full disclosure, some of Tom Lydon’s clients own shares of SLX, SLV and GLD and is a board member of U.S. Global Investors.

In twelve months, food costs have risen 117% with products such as basic foods like beans up 45% and pork up 27%, writes Matthew Bretherton for Money. True, inflation has slowed, but that’s primarily on the falling oil and gas prices.

We throw away food in the millions of tons, much of it is still safe to eat, but now we are less apt to throw away comestibles. A greater number of people are starting to take up this trend and we are starting to turn back to the kitchen stoves once more instead of buying ready meals.

“Inferior” food substitutes and comfort foods, such as baked beans or white bread, are on the rise as shoppers try to find the best amount of food for a bargain. Products past “best before” dates are also being bought up at dirt cheap prices at that long forgotten corner of the market. It should be worth remembering that these dates are guidelines only, but common sense should also dictate a shopper’s decision.

By sticking to a less opulent food plan, consumers may save money, cut food waste, and maybe eat healthier.

ETFs that provide investors a window into food prices and agriculture include:

• Market Vectors Agribusiness ETF (MOO): a global agriculture market ETF, down 3.3% year-to-date
• PowerShares DB Agriculture Fund (DBA): a futures contracts-based ETF, down 4.7% year-to-date
• iPath Dow Jones AIG-Agriculture (JJA): down 1.7% year-to-date
• E-TRACS UBS Bloomberg CMCI Agriculture (UAG): down 29.5% since April 1 inception
• ELEMENTS Rogers Intl Commodity Agriculture (RJA): down 2.8% year-to-date
• ELEMENTS-Linked to MLCX Grains Index (GRU): down 40.8% since Feb. 15 inception
• PowerShares Dynamic Food and Beverage (PBJ): down 6.1% year-to-date
• E-TRACS UBS Bloomberg CMCI Food (FUD): down 25.2% since April 4 inception

There are more than two dozen commodity ETFs to choose from, most of them being introduced to the market in the past couple of years.  The interest and appeal of these ETFs can be accounted for because of both the appealing characteristics of ETFs and the overall spike in commodity prices, states the Associated Press. 

Crude oil doubled its value in twelve months, only to see itself down 70% from its historic high, gold flirted with the $1,000 mark, now trading around $800, and corn reached $8/barrel, now at $3.30/barrel.  These all-time highs made the industry lucrative, but now that they have bottomed out and the industry may not be so attractive.

This dramatic decline in prices hinders ETFs, in that the ETFs may fail to gain enough assets to generate the sustained momentum needed to stay alive.  It appears that the future prospects of these ETFs will be determined by whether the commodities market rebounds.    

Some, like Jim Rogers, believe that a bounceback may be in sight and the industry may be prosperous once again.  Invesco PowerShares Capital Management launched four new commodity ETFs in September, and ProShares introduced eight new commodity-based ETFs recently.

Commodities are known for their volatility, ability to offer a hedge against inflation, and their trend to move against the overall market enabling wise investors to stabilize their returns over time.  The industry has been slaughtered and a rebound is a future possibility, as the demand will always be there for these goods.

• iShares S&P GSCI Commodity-Indexed Trust (GSG): is down 46.1% year-to-date

• ELEMENTS Rogers International Commodity Agriculture ETN (RJA): is down 40.1% year-to-date

According to the Mole for CNN Money, U.S. stock funds have earned only 82% from 2003 through 2007.  These numbers are somewhat daunting compared to the 168% earned by international stock funds during the same period.

Regardless, it is vital to be exposed to U.S. markets and foreign markets for a number of different reasons. The U.S. represents nearly 42% of the world market capitalization – meaning, 42% of the world stock market value.  Not considering the United States when investing would leave an enormous gap in a globally diversified portfolio.

A big part of the international appeal stems from emerging markets.  David Hoffman for InvestmentNews explains that recent moves to floating exchange rates, an increase in the independence of central banks, current account surpluses, decreasing interest rates and reduced levels of debt all contribute to the attractiveness of emerging markets for investors taking a medium to long term investment outlook.

However, emerging markets can be very volatile.  Investors need to maintain a balance between wrecklessly pursuing returns and true global diversification.

Now, investing in international ETFs alone would simply be performance chasing.  Besides, many ETF investors have started to make the move back home investing more in US markets.  As we mentioned in a previous story, for the first time this decade, the US stock market and ETFs are outperforming their international counterparts.  It is also important to note that hardly any funds investing in a single country are above their trend lines as of late.

However, some International/global ETFs to consider include:

• Vanguard FTSE All-World ex-US ETF (VEU), down 23.6% year-to-date
• iShares MSCI EAFE Index (EFA), down 23.4% year-to-date.
• ELEMENTS Rogers Intl Commodity Agric ETN (RJA), down 5.8% year-to-date
• iShares S&P Global Healthcare (IXJ), down 8.5% year-to-date

These regulators are considering the use of cloned food products in European markets. Food cloning could develop into a rather substantial industry if it is supported by European consumers. With the United States backing the use of cloning to produce meat and milk products, it will be interesting to see what kind of stance is taken by the EU.

Many circumstances circling the cloning issue are discussed by BobMoon and Stephen Beard for Marketplace Public Radio. They are quick to point out further clarification is needed to resolve the cloning issue at hand, especially with regard to the safety of cloned animal products. One of the more important issues, they say, is the health and welfare of the clones and their surrogate mothers.

European consumers are described as squeamish and fussy in this discussion. Moon and Beard highlight that the European consumers have yet to accept genetically modified crops, let alone cloned animal products. These consumers, however, could face the reality of cloned animal products sooner than later, as European governments and food producers feel cloned animals produce leaner and more tender meat and increase milk yields.

Despite the reluctance of the European consumer, there are some factors that Maureen Groppe of USA Today points out that may justify the production of cloned animal products. In her article, she discusses the soaring food prices in the US, which have risen 7.5% since last year. The rise in food prices are considered to be directly correlated with high oil prices and the weak dollar.

As this problem looms in the United States, food shortages around the globe could justify the use of cloned food products as well. The Food and Agricultural Organization estimates that nearly 40 countries are facing food shortages that require international intervention.

With different factors surrounding the issue of cloned animal products, many different agriculture ETFs could benefit from investment in this developing industry. Some agriculture ETFs include:

• PowerShares DB Agriculture (DBA), up 7.6% year-to-date
• ELEMENTS Rogers Intl Commodity Agriculture (RJA), down .6% year-to-date
• E-TRACS UBS Bloomberg CMCI Agriculture (UAG), launched on April 1, 2008