Oil is down, natural gas has done a nosedive – now agriculture could be the next commodity to explode, mostly because of rising food costs and increased demand, giving agriculture-focused exchange traded funds (ETFs) some time to grow.
Lately, have you noticed your grocery bill going way up, even if your cart isn’t way full? In the United States alone, the cost of groceries went up at an annualized rate of 8.4% for July. Even though commodity prices are falling, do not expect the food prices to start lowering, especially because of globalization, there are many more middle class families worldwide to compete with, says Sean Broderick for Money And Markets.
Food is something we will always need, and like energy, we use it up. Here in America, it may feel like we have the security of plentiful, affordable food. But Brodrick points this out: U.S. consumers spend roughly 15% of every dollar on food. In China, 30% of consumer income is spent on food. In India, it’s closer to 35% or even 40%. And these are relatively “rich” countries. When people begin running out of food, where do you think they will travel to?
Surging demand for food is already making waves around the world, and this is a problem that is going to persist and get more intense as time goes on.
Today, the Department of Agriculture cut its forecast for this year’s corn and soybean harvests because of drought. Because corn will be about 12.1 billion bushels (down from the estimated 12.3 billion last month) and soybeans will be at 2.93 billion bushes (down from 2.97 billion last month), the result could be higher commodity prices.