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Food Prices Will Keep Soaring
07/08/2008 12:00 am EST
Neil George, editor of Personal Finance, says food prices will continue to rise, and he recommends some vehicles for investors who want exposure to them.
The soaring cost of food isn’t just hitting families in the US; it’s hitting everyone around the world.
Prices have risen so much that [last] month, delegates from nearly all nations attended a United Nations-sponsored summit in Rome to discuss solutions for controlling prices. (It also is a big topic at the meeting of the G8 now taking place in Japan—Editor.)
During the past five years, consumer food costs have soared by more than 117%, or nearly 18% on an average annual basis. In the [past] 12 months alone, prices surged more than 52%.
This agricultural price index has stomped the general stock and bond markets over the past year, with gains this past year exceeding 47%.
The mega-investors aren’t waiting around; they’re buying into other parts of the ag business—from grain elevators to processors and distributors.
You shouldn’t be sitting on your hands, either. This food trend is going to be here for a while, so you better stake your claim while buyers still outnumber sellers.
To get a solid base for your own portfolio, start with these two index funds structured around the Deutsche Bank commodity indexes.
The first is the broad PowerShares DB Commodity Index Tracking Fund (Amex: DBC). The fund owns all the underlying commodities from agriculture to metals to energy and provides full participation in rising prices. Buy DB Commodity Index Tracking Fund under 45. (It closed Monday below $46—Editor.)
Second is one of the subsets of the broad commodity index that’s focused on the food segment. PowerShares DB Agriculture Fund (Amex: DBA) owns and tracks corn, wheat, beans, and sugar, which comprise the core of the food market. Buy Deutsche Bank Agricultural Fund second under 43. (It closed below $40 Monday—Editor.)
After you own the underlying commodities, you need to step into companies that are serving the ag producers. This means the companies developing and selling engineered seeds, as well as chemicals and fertilizer products needed to grow more bountiful and, therefore, more profitable crops.
We owned the king—Monsanto (NYSE: MON)—for years and cashed out big. But we continue to recommend that you buy and own its better-valued peers, starting with Bayer (OTC: BAYZF). Bayer is best known for its drug and health products, but a good portion of its profits come from its ag chemicals and other related products and services. Sales surge year after year, and like Monsanto years ago, it’s still a bargain.
Although it may not be touted much now, we’ll be sitting on big profits when conventional investors start to sing its praises. Trading at a fraction of its rising sales, Bayer is a Buy under 90. It closed above $86 Monday—Editor.)Subscribe to Personal Finance here…
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