by Jeff Reeves | February 27, 2014 11:47 am
After a roaring 30% run in 2013, the broad market has gotten choppier for U.S. stocks this year, with the market basically flat year-to-date and characterized by much more volatility.
And bonds have moved slightly higher on a price basis in 2014, but rates remain historically quite low with 10-year Treasuries yielding just 2.7%.
But investors looking for the next hot trade may want to look beyond stocks and bonds.
They may want to look at what they’re eating for breakfast.
Agricultural commodities have been on a tear in the new year, and show no signs of slowing down after outsized gains. Many consumers are already seeing the impact on their grocery bills, and savvy traders are putting their money in investments that share in this tailwind for these commodities in 2014.
If you’re unfamiliar with how to play agricultural commodities, here are five high-flying foodstuffs to watch — and easy ways to share in their success:
All you java junkies may have noticed that your morning brew costs a bit more these days. That’s because coffee prices as measured by U.S. futures are up more than 50% in 2014.
The reason? A drought in Brazil, the world’s largest exporter of coffee, has weighed significantly on crops recently. Coffee is at its highest levels in about 16 months as a result.
And the trend may not mitigate any time soon, either. The Washington Post reports that a mix of rising demand and hot, dry weather (perhaps caused by climate change?) is driving a coffee shortage that seems to be getting worse.
If you want to play this coffee crunch, you have two simple ways via “exchange-traded notes” or ETNs: The iPath Dow Jones-AIG Coffee ETN (JO) and the iPath Pure Beta Coffee ETN (CAFE). These investments can be traded easily in most IRAs or brokerage accounts like a conventional mutual fund or ETF, but are made up of futures contracts instead of constituent stocks.
Both investments are up more than 50% this year, reflecting the direct increase in coffee futures.
Want a little sugar in your coffee?
Even if you prefer to drink your joe black, there’s a lot of reason to look to sugar after you look at coffee. The same Brazilian drought is also weighing on sugar crops, and the largest sugar producer in the nation just cut its forecast by 3 million metric tons thanks to bad weather.
Sugar prices are up about 20% off January lows, and investments like the iPath Dow Jones-AIG Sugar ETN (SGG) and the Teucrium Sugar Fund (CANE) that deal with sugar futures have put up similar numbers.
Of course, longer-term prices of sugar have been stable or declining since mid-2011, so before you scoop up this sweet investment you may want to take a hard look at your time horizon.
If you’re not into coffee, your morning glass of O.J. could also be at risk from rising food prices.
Unusually cold temperatures thanks to the polar vortex and other weather patterns have resulted in rough outlooks for citrus producers. But to add insult to injury, this cold snap comes after a 19% gain for orange juice futures in 2013 thanks to a persistent disease known as “greening.”
Unfortunately, while investing in orange juice futures may be lucrative, retail investors have very few options because the market isn’t as deep as other agricultural commodities.
The broad-based Powershares DB Agriculture Fund (DBA) is an exchange-traded product that deals in a diverse group of commodities, including cattle and grains and orange juice. Thanks in part to strength in orange juice as well as pricing for other foodstuffs, the DBA fund is up about 10% in 2014.
Pork is a staple at breakfast in the form of bacon and sausage. And lately, pork has been a staple for commodity traders thanks to big-picture pressures pushing up prices.
For starters, a virus outbreak that crossed 22 states in January weighed significantly on the pork industry, pushing futures to new highs. The disease was estimated to affect about 10% of the nation’s sows, according to reports, and frequently is fatal to piglets. Major pork producer Smithfield said it will lose about 2 million to 3 million head of pigs this year as a result.
Like orange juice, it’s hard to get a pure play on pork. But the iPath Dow Jones-UBS Livestock ETN (COW) is one easy way. While the ticker symbol implies cows are the only investment, this fund has is about two-thirds in live cattle and a third in lean hogs futures.
The COW fund is up about 9% year-to-date thanks to rising prices for both pork and beef in 2014.
Let’s not forget wheat, which goes into your toast and pancakes and waffles — as well as a host of meals and snacks.
Wheat is one of America’s most important agricultural commodities. The nation plants some 60 million acres each year and harvests north of 2 billion bushels — enough for over 600 loaves of bread per person in the U.S.
And that’s just the domestic wheat market.
Thanks to a weaker U.S. dollar raising exchange rates and thus lifting the price of grain in the global market, wheat prices have been marching higher. Furthermore, the cold weather in the U.S. has been hurting forecasts and the wet spring could delay planting in the Midwest.
It’s no surprise then that the Teucrium Wheat Fund (WEAT), an exchange-traded note that deals with wheat futures, has marched nearly 10% higher in the last month or so.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.
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