Weather patterns in the US and globally for the last 18 months have been crazy. Very cold, very snowy winters, extra hot summers, drought, you name it. All these patterns have an effect on crops and the movement of crops, and it is not a positive effect.
Within the last few of years, there have been riots around the world triggered by food inflation. It is a huge burden for low-income earners here and globally to support a 40-50% increase in the price of wheat or flour. Protestors have sent notice to their respective governments to make sure they have plenty of food stuffs on-hand and in storage to offset tight markets.
We believe that agricultural commodities, or “soft commodities” as they are called by traders, should be a cornerstone of any portfolio these days. We also recognize that the increased interest in these commodities, and the creation of many equity-linked commodity ETFs and ETNs, have increased the volatility of these commodities.
Having said that, we have drawn our line in the sand and want to be long these assets at these levels. One easy way to play soft commodities is the PowerShares DB Agriculture Fund (ticker: DBA), an exchange-traded fund incorporated in the USA. The Fund’s objective is to reflect the performance of the DBIQ Diversified Agriculture Index Excess Return.
DBA is a much easier way to get exposure to a basket of commodities. We think that DBA will not be any lower than $30 for the balance of the year and would sell our positions if it traded above $36.
Stutland Volatility Group
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