Agriculture is perhaps the most practical commodity sector, as many of its products enjoy inelastic demand around the world. As such, this segment has always been given a fair amount of investing attention. Because there are so many different futures in the ag world, ETFs have become one of the most effective and popular ways to play this broad commodity sector. After enduring one of the worst droughts in U.S. history, agriculture ETFs are taking another hit as they have been trending downward since September [for more agriculture news and analysis subscribe to our free newsletter].
Starting from September, the massive DB Agriculture Fund (DBA) has lost approximately 6.5% with outflows of just over $200 million. At its current asset base of $1.76 billion, that $200 million loss represents more than 10% of its current holdings. So why the sudden dip? Many are simply calling it a correction from the strong run that these commodities saw during the summer. As we head into the winter months, the sector is cooling off and finding a more sustainable level. But while these assets have been weak in the short term, their long-term outlook is still quite strong.
Agriculture At a Glance
The simplest argument for agriculture investing is the fact that everyone needs to eat; not to mention the fact that “everyone” is a constantly growing number. Our global population sits just above the seven billion mark, but it is not expected to remain there. By 2030, our world is expected to house more than eight billion people, and 2050 will see approximately nine billion as the population continues to grow at an exponential rate. Think of it this way: our (global) population adds about 142 people every minute, or 75 million on an annual basis.
With more and more mouths to feed each year, agricultural commodities are sure to see a jump in demand and consumption, and higher prices will likely coincide. Not only that, but these assets are a great way to keep pace with inflation as foods are usually the first to be impacted by a general rise in prices. So with agriculture taking a hit in the short term, now may be a good time to position yourself for a longer timeline.
Disclosure: No positions at time of writing.