Monday, January 10, 2011

World Food Sub-Index Prices

Sometimes I just don’t know when to leave well enough alone, particularly when it involves that Holy Grailesque quest to cram every potentially relevant piece of data into one overcrowded chart.

Yesterday’s Chart of the Week: World Food Prices is an example of a relatively uncluttered chart that attempts to make one or two simple points in a relatively clear and concise manner. After some back and forth with several readers, I have elected to butcher that simplicity and unveil a chart which adds the five sub-indices: meat; dairy; cereal; oils and sugar. The result, which I have appended below, shows that the real wild card in world food prices has been sugar, which is represented on the chart by the green line. To a lesser extent, cereal, dairy and oil have had their moments of extreme price fluctuations. By far the least volatile of the five sub-groups has been meat.

For those who are looking beyond futures to ETPs which can replicate some of these commodity sub-indices, there are a number of broad-based agricultural ETFs which cover most or all of the sub-indices. The popular PowerShares DB Agriculture Fund (DBA) is by far the most liquid of the group. Alternatives to DBA include RJA, JJA, FUD and UAG. For investors looking to target grains, JJG and GRU are worth investigating, as is the corn-specific ETP, CORN. For the sugar sub-index, SGG is an excellent match. JJS is an ETP for the ‘softs’ space and is almost equally weighted between coffee, cotton and sugar. Finally, both COW and UBC are potential proxies for the meat sub-index.

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[source: United Nations]

Disclosure(s): long CORN and SGG at time of writing

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