Soft Commodities: Cocoa, Cotton and Corn

Can agriculture and other soft commodities provide investors with opportunities for growth this year?

Emma Wall 9 January, 2014 | 4:38PM
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Commodity prices have plunged over the past 18 months – presenting contrarian investors with buying opportunities. But it is not just gold, copper and iron ore that have suffered – soft commodities have fallen in value too.

This could be a good buying opportunity

The db Argiculture Booster ETC (exchange traded commodity) tracks an index comprised of cocoa, coffee, corn, cotton, soybeans, sugar and wheat, and has fallen 24% in the last year. The db S&P GSCI Agriculture ETC has lost 21% of its value in the past 12 months.

The decline is in part due to speculative trading that banked on growing demand from emerging markets and inflation in developed markets. But over the last year both of these elements have failed to materialise.

As nothing fundamental has changed in the soft commodities market, bulls are saying the market is due a correction and this could be a good buying opportunity.

Soft commodities such as cocoa, agricultural products and timber can provide a useful diversifier in a portfolio. Investors can buy an ETF, or opt for a fund.

Agriculture funds fall into two categories; there are some that only invest in the commodities themselves – such as Barclays Global Agri Delta – or actively managed funds that invest in commodity stocks.

Much as BlackRock Gold and General (Morningstar analyst Gold Rated) invests in gold-related shares, Sarasin AgriSar (Bronze Rated) invests in stocks involved in the entire soft commodity supply chain – from manufacturers of farming machinery to supermarkets.

DWS Invest Global Agribusiness is also Bronze Rated and invests in a broad range of stocks from seed and fertiliser producers as well as suppliers to the agricultural industry and owners of agricultural land.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar