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1) Buy
directly into the futures
The most direct way to profit from rising food prices is to buy futures
(wheat, corn, soybeans, etc).
2) Buy ETFs that give exposure to agriculture futures.
Here is a Seeking Alpha article about Which of the 6 Agriculture ETFs is Best.
To play the agricultural boom, investors could either buy
directly into the futures or turn to a handful of ETFs that are now on the
market. There are 6 ETFs that will give investors exposure to the agriculture
futures.
PowerShares DB Agriculture ETF (DBA) – The ETF has been around a
little over one year, the most of any of the ETFs on this list. Four equally
weighted commodities make up the base allocation for DBA: corn, soybeans,
sugar, and wheat. The expense ratio for all ETFs on the list is 0.75%. DBA is
the most liquid of the ETFs by far, but the concentration in only 4
commodities does put the risk at above average.
iPath Dow Jones AIG-Agriculture ETN (JJA) – The ETN is a little
more diverse than DBA, with 7 commodities. The largest allocation is in
soybeans (31%), followed by wheat (20%), and corn (16%). Since it began
trading in October 2007 the ETN is up 28% versus a gain of 36% for DBA. The
liquidity is more than enough for investors and the only issue is 1/3 of the
ETN in one commodity, soybeans.
ELEMENTS Linked to the Rogers International Commodity Index –
Agriculture ETN (RJA) – For starters, do you think they could have
come up with a longer name for their ETN? Second, keep in mind this is an
exchange-traded note [ETN], versus and ETF. Most investors will never know
the difference and I will not go into the intricacies in this article. RJA is
the most diverse of the group, with 20 different agriculture commodities
represented. The top holdings include: wheat (20%), corn (14%), cotton (12%),
and soybeans (9%). With more diversity among commodities, the upside
potential will be less than the previous two ETFs, but the downside will also
be less. For example, the ETF is up only 20% in the same time frame as the
other two above, thus lagging. During the one-week pullback in mid January of
the agriculture ETFs, DBA lost 9%, JJA 7%, and RJA was only down 5%. This ETF
is perfect for the more conservative commodity investor.
iPath Dow Jones AIG-Grains ETN (JJG) – The grains are considered
a sub-sector to the agriculture and consequently there are not nearly as many
to choose from when building a grains ETN. JJG is composed of only 3
commodities: soybeans (46%), Wheat (30%), and corn (24%). Recently it has
been okay to be concentrated on three very hot commodities; since late
October the ETN is up 31%. The two problems with JJG are the low average
daily volume resulting in large spreads and the risk of being over concentrated.
ELEMENTS Linked to the MLCX Grains Index ETF (GRU) – The newly
introduced ETN from the company that brought you RJA began trading this week
and has yet to bring in the volume needed to get rolling. That being said, it
is an alternative to JJG because it offers a similar strategy. The major
difference is where the money is allocated. The top holdings are: wheat
(47%), corn (36%), soy meal (10%), and soy beans (8%). If wheat is your game,
go with GRU. If soybeans get you more excited, JJG is there for you.
ELEMENTS Linked to the MLCX Biofuels Index ETF (FUE) – This ETN
may not sound like it should be included in this list, but after I share with
you the allocation you will understand. The top holdings are: soybeans (32%),
sugar (25%), corn (21%), and soy bean oil (13%). FUE is very new as well and
has yet to attract the volume and therefore spreads could be an issue. Other
than that, the one issue I have with FUE is the absence of wheat. Because
wheat is not considered to be used in biofuels it is not included. I want to
have exposure to wheat, therefore choose one of the other five candidates.
3)
Buy an ETF that tracks agriculture stocks
Here is one such ETF:
Symbol: MOO
The investment seeks to replicate as closely as possible, before fees and expenses,
the price and yield performance of the DAXglobal Agribusiness index. The fund
normally invests at least 80% of total assets in equity securities of U.S.
and foreign companies primarily engaged in the business of agriculture, which
derive at least 50% of their total revenues from agribusiness. Such companies
may include small- and medium-capitalization companies.
4) Buy directly
into stocks involved with agriculture
I personally believe the best way to invest right now is to buy stocks
directly, while staying away from ETFs and futures. With this in mind, here
are six agriculture stocks that look like attractive investments.
Symbol: SYT
Syngenta AG (Syngenta) is an agribusiness that is involved in the discovery,
development, manufacture and marketing of a range of products designed to
improve crop yields and food quality. Syngenta is also engaged in the
development of products for markets, such as seed care, lawn and garden,
professional pest management, vector control and public health. The Company
operates in three business segments: Crop Protection, Seeds and Business
Development. Crop Protection chemicals include herbicides, insecticides and
fungicides to control weeds, insect pests and diseases in crops. The Seeds
business operates in two commercial sectors: seeds for field crops, including
corn, oilseeds, cereals and sugar beet, and vegetable and flower seeds.
Through its Business Development research, Syngenta is applying biotechnology
to areas, including biofuels and animal feed. In November 2008, Syngenta
announced that it has closed an agreement to acquire SPS Argentina SA.
Symbol: MOS
The Mosaic Company (Mosaic) is a producer of phosphate and potash crop
nutrients for the agricultural industry. The Company operates its business
through three business segments: phosphates, potash and offshore. The
Phosphates segment produce phosphate fertilizer and feed phosphate which are
used in crop nutrients and animal feed ingredients, respectively. The
principal inputs used in crop nutrients production are phosphate rock, sulfur
and ammonia. The Potash segment mines ad processes potash in Canada and the
United States and sells potash in North America and internationally. The
Offshore segment produces and markets fertilizer products and provides other
ancillary services to wholesalers, cooperatives, independent retailers, and
farmers in South America and the Asia-Pacific regions. As of May 31, 2008,
Cargill, Incorporated owned approximately 64.4% of the Company’s
interest. As of May 31, 2008, the Company had a 50% interest in Saskferco
Products Inc.
Symbol: POT
Potash Corporation of Saskatchewan Inc. is an integrated fertilizer and
related industrial and feed products company. The Company’s potash is
produced from six mines in Saskatchewan and one mine in New Brunswick. Of
these mines, it owns and operates five in Saskatchewan and the one in New
Brunswick. Its nitrogen operations involve the production of nitrogen
fertilizers and nitrogen feed and industrial products, including ammonia,
urea, nitrogen solutions, ammonium nitrate and nitric acid. It has nitrogen
facilities in Georgia, Louisiana, Ohio and Trinidad. The Company’s
phosphate operations include the manufacture and sale of solid and liquid
phosphate fertilizers, animal feed supplements and industrial acid, which is
used in food products and industrial processes. It indirectly holds all
outstanding interests in PCS Joint Venture, Ltd., which formerly
manufactured, processed and distributed fertilizer and other agricultural
supplies from plants located in Florida and Georgia.
Symbol: MON
Monsanto Company (Monsanto) along with its subsidiaries, is a global provider
of agricultural products for farmers. The Company’s seeds,
biotechnology trait products, and herbicides provide farmers with solutions
to produce foods for consumers and feed for animals. It has two segments:
Seeds and Genomics, and Agricultural Productivity. In October 2008, the
Company consummated the sale of its dairy business. In September 2007,
Monsanto acquired Agroeste Sementes, a Brazilian corn seed company. Agroeste
focuses on hybrid corn seed production and serves farmers throughout Brazil.
In June 2008, it acquired De Ruiter and a related company. De Ruiter is a
protected-culture vegetable seeds company based in the Netherlands with
operations worldwide. In July 2008, the Company acquired Marmot, S.A., which
operates Cristiani, a seed company. In December 2008, Monsanto acquired Aly
Participacoes Ltda., which operates the sugarcane breeding and technology
companies, CanaVialis S.A. and Alellyx S.A.
Symbol: DE
Deere & Company (John Deere), through its subsidiaries, operates in four
business segments. The agricultural equipment segment manufactures and
distributes a full line of farm equipment and related service parts. The
commercial and consumer equipment segment manufactures and distributes
equipment, products and service parts for commercial and residential uses.
The construction and forestry segment manufactures, distributes to dealers
and sells at retail a range of machines and service parts used in
construction, earthmoving, material handling and timber harvesting. The
credit segment primarily finances sales and leases by John Deere dealers of
new and used agricultural, commercial and consumer, and construction and
forestry equipment. In May 2008, the Company acquired T-Systems
International, Inc. In June 2008, it acquired a 50 % equity investment in
Xuzhou Xuwa Excavator Machinery Co., Ltd.
Symbol: BG
Bunge Limited (Bunge) is an agribusiness and food company operating in the farm-to-consumer
food chain. The Company conducts its operations through three divisions:
agribusiness, fertilizer and food products. These divisions include four
segments: agribusiness, fertilizer, edible oil products and milling products.
The agribusiness division is involved in the purchase, storage, transport,
processing and sale of agricultural commodities and commodity products. The
fertilizer division provides farmers with a range of products and services,
including crop nutrients, and sells raw materials to other fertilizer
manufacturers and animal nutrients to livestock producers. The food products
division consists of two business segments: edible oil products, such as
edible oils, shortenings, margarines and mayonnaise, and milling products,
such as wheat flours and corn products. In September 2008, Bunge
acquired a 60% interest in Monteverde Agroenergetica SA.
Eric
de Carbonnel
Market Skeptics
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