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ETF Specialist

Agricultural Commodities in the Spotlight

Globally, calorie consumption is growing and could spur demand as well as a need for greater agricultural productivity.

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Over the past month, prices of agricultural commodities including corn, soybeans, and wheat have spiked in response to poor growing conditions in North America and Europe. While the fundamental story may play out over the long term, this highlights the pronounced impact of weather conditions on the agricultural complex. The Bloomberg Agriculture Subindex gained about 14% in the trailing one-month period through July 15. Longer-term performance, however, has been very uninspiring, as the index has posted annualized losses of more than 13% over the past three years.

For those looking at potential investments in the category, there are some offsetting forces at play that are worth considering. The bullish thesis is based on a growing global population and a finite amount of arable land for farming. In general, more mouths to feed means greater demand for grains and other agricultural commodities. That said, greater agricultural productivity has led to bigger crop yields, which has so far kept a lid on agricultural commodity prices. Unpredictable and volatile weather is the major wildcard in the equation, complicating the supply-demand dynamic even further.

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John Gabriel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.