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Agriculture mutual funds, ETFs, stocks, commoditiy indexes
Since the early 2000's, there have been modest to large increases in the commodity prices of many agriculture products such as corn, wheat, barley, soy beans, sugar, coffee, and many types of meats.

Why has this occurred and what are some ways to play the agricultural market?

Reasons for price increases

There are many factors that are contributing to growing agricultural prices in the 2000's and beyond.  You may have already read about some of them, but here are a few of the main ones.

In the 1990's and earlier, prices for most commodities were steady and low, and demand was able to meet supply except for the odd period of crop failure.  Because of low prices, there wasn't much incentive to take part in farming, therefore for years little capacity was added to agriculture production.

In the 2000's and beyond, many countries in the world are well along the development path, and their populations are now increasing with many better able to afford different foods.  This is creating increased demand from countries such as China, India, Russia and Brazil.
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Because farming capacity hadn't been increasing, the world is now in a position of greater demand for food and not enough supply.  It takes years to prepare fields and get more production into the pipeline for some crops, so there is no quick fix to meet the increased demand.

In addition, corn and other crops are being diverted to ethanol production in order to decrease reliance on fossil fuels, which takes away from crops as a food source.  Ethanol producers can pay a premium for crops, which in turn increases the price of food.  As a side effect, producers of poultry and beef are paying higher prices for animal feed, which results in rising meat prices.

Global warming may also be playing a part.  Increasing temperatures and an increased number of weather incidents could lead to more crop failures, which decreases supplies available and drives up prices.  For example, severe drought in the southern US decreased crops yields in 2012.

A good resource to learn more reasons for the rise of commodity prices is Jim Roger's book called "Hot Commodities".


Ways to invest in Agriculture

It is hard for the average investor to play individual agriculture products like corn or wheat.  It is easier to find a mutual fund or ETF that focuses on agriculture, though there aren't many of them.  Many commodity and natural resource funds have agriculture components, but also usually include oil and metals.  You can also find invididual stocks that would benefit from an agriculture boom.  Some examples are given below:

Funds that focus on Agriculture

The PowerShares DB Agriculture Fund (DBA) The PowerShares DB Agriculture Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Diversified Agriculture Index Excess Return™ ("DB Agriculture Index" or the "Index") plus the interest income from the Fund's holdings of US Treasury securities less the Fund's expenses.  DB Commodity Services LLC serves as the Managing Owner of the Fund.  The Fund is designed for investors who want a cost-effective and convenient way to invest in commodity futures. The Index is a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities.

The Shares Global Agriculture Index Fund (COW) iShares Global Agriculture Index Fund seeks to track, less fees and expenses, the MFC Global Agriculture Index.  It invests in equity and equity-related securities involved in the agricultural sector.  MFC employs a proprietary quantitative, multi-factor, bottom-up, selection process to select and weight the top companies.

Some indexes that follow agriculture are:

DJAIGAGSP Dow Jones - AIG Agriculture
DJAIGAG Dow Jones - AIG Agriculture Sub-I
DJAIGAG3 Dow Jones - AIG Agriculture Sub-I
DJAIGAGTR Dow Jones - AIG Agriculture Total
DJAIAG3T Dow Jones - AIG Agriculture Total

Stocks that are related to Agriculture

Farmers need many products and services to conduct their business, from farm machinery to fertilizer to chemicals and seeds.  As farmers receive greater prices for their crops, they are better able to afford items that help them.  Investigate companies that market to the agriculture industry, such as John Deere (farm equipment), Potash Corp. of Saskatchewan (fertilizer) and Monsanto (chemicals).

For a quick look at some potential Agriculture investments on Yahoo Finance, click here

disclaimer: this page is meant for information purposes only, and is not an endorsement to invest in any stocks or securities; investors should pursue their own due diligence prior to investing.
Agriculture Investing today  
by R. Borhi
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