Agriculture ETFs to Feed the World

11/07/2013 9:00 am EST

Focus: STRATEGIES

Richard Stavros

Analyst, Global Income Edge, Utility Forecaster and Personal Finance

The next big geopolitical struggle could be over food. Many experts predict that there won't be enough food to feed growing populations, and agricultural commodities will double in price over the next 20 years, suggests Richard Stavros, editor of Inflation Survival Letter.

For the sixth time in 11 years, the world last year consumed more food than it produced, largely because of extreme weather in the US and other major food-exporting countries.

Poverty fighting organizations, such as Oxfam, predict that the price of key staples, including wheat and rice, could double over the next two decades, threatening disastrous consequences for human populations.

These statistics suggest that a combination of agricultural commodities investments in the US, Africa, and Asia would be in order, with a focus on wheat, rice, maize, and soybeans.

Various agricultural supply forecasts paint a dystopian future, reminiscent of the 1973 movie, Soylent Green. Let's hope the world's leaders find sustainable solutions to these pressing problems.

But for now, let's put aside science fiction and return to science fact. Here are the best plays on the coming era of food scarcity.

The benchmark agricultural commodity ETF is PowerShares DB Agriculture (DBA). It is a pure food products commodity play. It holds futures contracts on corn, wheat, soybeans, and sugar. These contracts are rolled over before expiration to maintain exposure.

Another futures-based ETF is PowerShares Deutsche Bank Commodity Index (DBC). It is more diversified than DBA. It holds futures contracts in corn and wheat. But it also holds significant positions in gold, heating oil, and crude.

A comparison of DBA with DBC finds that agricultural commodities have been on the rise as a whole over the last ten years.

The broader DBC ETF increased almost 13%, whereas its more focused cousin, DBA ETF increased by less, by 3%. DBA and DBC are both buys up to $30.

Given the world's current and future demand for corn, wheat, soybeans, and sugar, we are adding DBA to our portfolio. For those seeking a more diversified exposure, DBC is also an option.

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