Some nice weather could mean lower prices for certain crops, but it might not do anything to add to the performance of agriculture exchange traded funds (ETFs).
After flooding this summer, farmers in the Midwest staged a nice rally. They’re now on pace to produce the second largest corn crop and fourth largest soybean crop in history, says the Associated Press. Corn hit a record $8 a bushel earlier this year, and is now at $5 a bushel. It’s still higher than the 2006 prices, which stood at $2 a bushel.
The soybean crop is forecast to fall slightly, but the prices are still expected to drop. Wheat production is predicted to be slightly higher, also causing prices to dip a little.
Falling prices could deliver a dose of relief to farmers who rely on corn and soybeans for feed. High prices for grains have almost eliminated profits for chicken and beef companies this year.
It hasn’t been the best of times for commodity ETFs these last few weeks, and it has some asking if it’s time to stick a fork in them. One advisor tells investors not to panic, because much of the losses are reflective of a stronger dollar. But even with a strengthening dollar, there could still be room for commodities to resume the uptick.
Some commodity ETFs are off their highs into the double digits. The PowerShares DB Agriculture (DBA) has dropped off by 21.3%, although it’s up 1.4% year-to-date. The fund holds futures in soybeans, wheat, corn and sugar.
Just because commodities are falling here doesn’t mean that it’s the same everywhere, though. In many developing countries, inhabitants are looking for ways to boost their own production and make some money.
Honduras is one country that has taken matters into its own hands and has become a cross-section view of the global food situation, according to Morning Edition on NPR. On the one hand, there are fields of lush and green genetically engineered corn. On the other are low-income families that joke (we hope) that they’ll have to eat one another if they become too hungry.
After farmers endured years of neglect by the government, the country is now trying to reverse the food shortage and feed its people by putting more money into food production.
Agriculture ETFs that could be affected:
- iPath DJ AIG Agriculture Total Return Sub-Index (JJA), down 4.1% year-to-date
- DB Agriculture Double Long (DAG), down 31.6% since April 15 launch
- DB Agriculture Double Short (AGA), up 24% since April 15 launch
- E-TRACS UBS Bloomberg CMCI Food (FUD), down 2.8% since April 4 launch
- ELEMENTS MCLX Grains Index (GRU), down 15.1% since Feb. 15 launch