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4 ETFs to Play Rise in Meat Prices

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Imbalances in supply and demand continue to take their toll on food prices as the price of meat continues to rise, giving positive support to four exchange traded funds.

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Imbalances in supply and demand continue to take their toll on food prices as the price of meat continues to rise, giving positive support to the PowerShares DB Agriculture Fund (DBA), the iPath Dow Jones-UBS Livestock Subindex Total Return ETN (COW), the Market Vectors Agribusiness (MOO) and the PowerShares Global Agriculture Portfolio (PAGG).

According to the United Nation's Food and Agriculture Organization's meat index, beef and sheep prices are at an all-time high and poultry and pig meat costs are on the rise. On the demand side, demand in much of the developed world like the US remains intact, while demand in the developing world for meat continues to rise. According to the US Department of Agriculture, demand in Asia, particularly in South Korea, Hong Kong and China, continues to rise. Furthermore, demand is expected to remain elevated in the near-term future as disposable income in developing nations continues to increase.

On the global supply side, weather conditions around the world have taken a toll on production, putting a constraint on supply. Additionally, declines in cattle inventories will eventually diminish the pool of cattle available for placement which, in turn, will decrease the number of fed cattle available for slaughter. Lastly, it takes nearly two to three years to substantially increase herds, so production will likely remain lower than demand.

As mentioned above, four ways to capitalize on increased meat prices include:

  • DBA, which holds futures contracts in feeder cattle and lean hogs. DBA allocates nearly 14.8% of its assets to futures in cattle and 8.1% to lean hog futures.

  • COW, which seeks to replicate the performance of the Dow Jones-UBS Livestock Subindex Total Return Index, which allocates 59.27% of its assets to cattle and 40.73% to lean hogs.

  • MOO, which tracks companies that are involved in the agriculture business. Top holdings include seed giant Monsanto (MON), fertilizer king Potash Corp. (POT) and agricultural machinery maker Deere and Co. (DE).

  • PAGG seeks to track companies involved in the agriculture business as well, but with a more dispersed weighting formula that favors international companies and appears to allocate a larger percentage of its assets to fertilizer and chemical companies than MOO.


Editor's Note: This article was written by Kevin Grewal, founder of etftutor.com.

No positions in stocks mentioned.

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