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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
By David Gillie for ETF Digest
NEW YORK (
ETF Digest) -- No matter what, people have to eat -- 7 billion of them now globally.
You can't eat your iPhone. You can't eat your gold coins. And you can't eat oil.
Feeding the world is big business and agriculture is a high tech industry. Farmers have to maximize crop yields with exact fertilizer blends for individual crops and conditions. Grains, fruits and vegetables have to be hybridized and engineered to grow outside of ideal soil conditions and climates. A John Deere harvesting combine is a complex piece of technological equipment costing as much as a Lamborghini ($250,000). Supplying the needs of farmers to feed the globe is one of the world's fastest growing industries.
Market Vectors Agribusiness(MOO) ETF is the best way to hold a basket of agricultural supply companies.
QE2 dollar devaluation brought a monster rally to grains in 2010. Hype and rumor lead to a hoarding of grains and resulted in a glut. Uncertain economic outlook drove to reduction of stockpiles. Fickle as commodity traders are, they then looked to see what the next "hot commodity" was and the Ag sector faded through much of 2011. The need for food hasn't faded and recent El Nina weather patterns have brought droughts expected to continue through spring 2012. Short supplies equal higher prices.
As with other commodities, Ag is highly responsive to movements in the Dollar (.DXY). With the Dollar currently at its 52-week high nearing 82, traders are already moving into Ag (JJA) anticipating a Dollar decline and cyclical expectations of the sector. Fertilizers had been hard hit with the Ag sell-off and rising Dollar. Negative sentiment has been strong. However, grain prices tend to front run fertilizer prices (or actually, fertilizer lags grains as farmers prepare for new crops) and the renewed interest in Ag is encouraging.
As further confirmation, MOO's largest holding,
Monsanto(MON - Get Report) crushed analyst's expectations in its recent quarterly report and projection for 2012.
Deere(DE - Get Report) has been especially strong and could have a "Golden Cross" of the 50-day moving average crossing above the 200-day moving average soon.
Potash(POT - Get Report) is showing a good bottoming process.
MOO has some very interesting chart patterns.