A recent report by U.K.-based think tank Chatham House suggests
the world is mere
steps away from a food crisis
. Spurred on in part by emerging market growth, a potentially
horrible situation for the world could be a profitable opportunity
[caption id="attachment_75768" align="alignright" width="300"
caption="Namdaemun Market - Seoul, South Korea"]
The report stated that the past decade of increasing commodity
demand has created an environment of "resource stress". The
prime contributor being the rapid growth and sheer amount
of consumption within the emerging market regions.
The report points to expected "supply disruptions, volatile
prices, accelerated environmental degradation and rising political
tensions" in the coming years. The report also suggests that
the although the "resource boom" is maturing, food commodity
supplies will remain strained and that the world remains perilously
close to a food crisis.
In addition to the BRIC countries, the significant impact of
which has been in effect for many years, some of the "frontier
markets" were noted as having particular impact over the coming
decades; countries like Turkey, Thailand and Vietnam.
With significant amounts of people within the more "developed"
emerging markets and the up-and-coming frontier nations there
will undoubtedly be continued strain on producers and
suppliers. One way to play the impact of emerging markets on
agricultural commodity prices is the the Powershares DB Agriculture
). DBA does not owns stocks, but rather invests in futures on
agricultural commodities. The top four holdings representing
12.5% of the portfolio each are corn, soybeans, sugar and live
cattle. The fund is very liquid and the most actively traded
agricultural commodity fund. For sophisticated investors
there are plenty of other more focused funds to consider, but DBA
is a great place to start building the agricultural component of a
Although the fund is essentially flat on a year-to-date there
can be made an argument that a slight uptrend is being established.
What may prove to be a double bottom also seems to be
developing, between mid-November and mid-December 2012, which would
support the idea that the fund is ready to move higher.
The five year chart also supports this idea with a consolidation
in play that began at the end of 2008. The fund appears to be
trading right in the middle of the current range, between
approximately $26.00 and $31.00 per share. Downside risk in
the near term should be limited to the low of $26.00. The
upside however could be much greater given previous levels achieved
in recent years.
It is difficult to imagine demand for agricultural commodities
not increasing in the future. As witnessed in the United
States with a plague of droughts recently, food shortages send
prices higher. Although a crisis on a global scale is
not something any of us want to witness, it does however present a
potentially very profitable trade.