While commodities such as wheat, soyabeans, corn, palm oil and pork bellies don't make massive headlines, most can easily be traded via major spread betting companies and you can also buy Exchange Traded Funds (ETFs).
The price of milk, eggs, chicken, corn and butter have all risen sharply over recent years, with corn up over 100 per cent causing riots in the streets of Mexico as the price of tortillas, a basic food, sky rocket. I have been a bull on commodities since 2003 and still see higher prices especially in grains, meats and soft commodities.
You may think that profiting from higher food prices is a little unethical and it's a case of the evil capitalist profiting from the poor. However, you're not going to stop the trend and if you feel guilty then why not give a percentage of your profits back to charity?
Driving all this are population increases and the rise of the middle classes in China and India. It is a fact that the calorie intake goes up as a population develops and there is an increase of processed foods. Furthermore, climate change is making global farming more difficult. Farming costs are increasing due to higher oil prices and the higher price of grains affects cattle prices as feed costs move up, affecting the price of milk and dairy products.
The final major factor is the US' desire to cut reliance on importing oil and to use food as fuel. The energy bill being debated in the US Senate would mandate that 36 billion gallons of ethanol is produced for transport fuel by 2020 (President Bush is on board since he proposed a 35 billion gallon mandate in his last State of the Union speech). It takes 450 pounds of corn to make enough Ethanol to fill a 25-gallon petrol tank.
While it may sound a good green idea, burning food to feed big 4X4 cars is not the solution. The solution is to cut down on consumption and use less fuel, not try and find a quick fix. Of course, getting the US Government to see sense is not going to happen and those voting farmers are cashing in on the higher grain prices, so it's a vote winner as well.
Higher food prices hit the poorest as they spend the highest proportion of their income on food. For the last few years, thanks to Government subsidies, competition from major supermarkets and increased efficiencies in retailing and farming, food prices have been kept fairly stable and we may have even become accustomed to lower prices. However, those days are well gone. Price increases will have to be passed on.
Now to trading - I have already featured palm oil and soyabean oil in the past and I still remain bullish on both. I also like soyabeans (see chart). You can spread bet soyabeans or you can look at buying an ETF. See www.etfsecurities.com.
You could look at buying the DJ-AIGCI Agriculture Index (AIGA) currently trading at US$6.50 (£3.20). This would give you exposure to soyabeans (25 per cent), cotton, sugar, coffee, soyabean oil, and wheat all in one trade. Remember you can buy ETFs via any stockbroker just like a share, and you can buy them in pounds.
Another winner in the higher demand for food category is Monsanto (MON), listed on the NYSE and available as a spread bet. Monsanto is a leading provider of seeds to farms for crops such as cotton, corn and soyabeans and also provides products to enhance cattle growth. Although we could see a pull back to $60, the growth story remains and the price is set to carry on higher.
Another to spread bet is New York-listed Syngenta (SYT), in which there is also a strong uptrend. The world's biggest food processor and seller of seeds, animal feeds and food ingredients is Archer Daniels Midlands (ADM) This is a slightly weaker chart but keep an eye on ADM as it could break out to the upside, currently trading at $35.
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