An early bounce in agriculture exchange traded funds faded on Monday with the sector ETFs in a holding pattern after a brutal September sell-off.

Weakness in the dollar over the past week has helped stabilize agriculture ETFs, which can be used to diversify a portfolio and hedge against rising inflation. However, the sector is vulnerable to a global economic slowdown. [ETF Chart of the Day: Agriculture]

The agriculture subsector is sensitive to economic fundamentals such as supply and demand because the fast-growing middle class in emerging markets affects the overall demand for food supply. The simple concept of populations growing as time moves on supports the growth in agriculture investments on a global level. [Agriculture ETFs Struggle to Stay in the Green]

“Getting better seeds, fertilizers, water pumps and farming equipment to where it’s needed is what the private sector is well suited to accomplish,” Roy Steiner, deputy director of agricultural development at the Bill and Melinda Gates Foundation, said in a Barron’s report. “Smart companies can make a difference, and make a profit.”

As emerging economies become more urbanized, the need for resources such as food grows along with the need for better diets, which affects the need for more farmland. Furthermore, the demand for farming equipment and seeds is affected. [ETF Spotlight: Market Vectors Agribusiness ETF (MOO)]

The latest global economic slowdown has taken the S&P Global Agribusiness Index, an index of 24 of the globe’s largest agriculture companies, down 16% this year, according to the Barron’s article. However, the need to feed the constantly growing and hungry world will support an agriculture investment for the long-term, according to the bullish view.

  • PowerShares DB Agriculture Fund (NYSEArca: DBA)
  • Market Vectors Agribusiness ETF (NYSEArca: MOO)

PowerShares DB Agriculture Fund

Tisha Guerrero contributed to this article.

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.