Teach Talk Trade Day Trading & Technical Analysis

For a while I have been saying it is time to “Ride the Bull in Agriculture” since I believe the bull market in food and agriculture is a virtual “sure-thing” over the coming decade and beyond.

I noted the impact that bio-fuels will have on the supply and demand equation in agriculture.  I was not supporting ethanol as a viable replacement for fossil fuels.  I try not to make the mistake of underestimating the stupidity of a government boondoggle.

Consider the energy equation.  It takes roughly 1.3 units of energy to produce one unit of energy from ethanol.  This is like trying to get rich by buying dollar bills for $1.30.  But if we’re even having the discussion, it tells me that it’s not the solution it has been hyped to be.

Think what will happen when these cars are produced in large quantities with a fuel source dependent on Mother Nature from year to year?  Ask a farmer if he can expect a bumper crop year after year.
I don’t support ethanol as a viable alternative.  I was noting the impact it may have on the agriculture supply and demand equation.  And that equation is showing that the world is beginning to demand more food than we are able to produce … even if we weren’t burning it up to produce energy. You might have seen or read recently that United States wheat inventories are at 60-year lows.  Imagine that.  The “world’s breadbasket” may have to begin importing wheat (if it’s available, that is!).  This is partly due to the ethanol rush, and the battle between food and fuel.
 
With farmers chasing the free millions from the government in corn subsidies. And by the say, that is your money they are giving away. The farmers are planting less of other crops.  When you combine these forces with the increasingly growing middle class in the developing world that are demanding more protein (it takes lots of grain to feed animals, to raise meat), it has created a massive squeeze play in the agricultural commodities. When I wrote about this two months ago, I recommended the DBA ( PowerShares DB Agricultural Fund ), which provides equally weighted exposure to corn, soybeans, sugar, and wheat.  Not surprisingly, this ETF has been rip roaring, up almost 30% year to date.

If you want to play the long-term boom in agricultural commodities, I would still think about DBA.  You should consider buying on pullbacks since it has had a strong run.