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Tickers in this Article: MOO, FUE, MOS, GRU, DBA, D
While most analysts focus on broad economic indicators such as consumer sentiment, or durable goods numbers to show how the economy is improving, there are plenty of other more esoteric markers that can provide a basis for investment. Using some of these, we can often find industries or sectors that have been beaten down enough to provide a nice cushion for value investing. One of these market statistics stems from your Sunday family dinner.

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Each week, the U.S. Department of Agriculture releases several different reports on various different crops and agricultural commodities. From recent reports we learn that the number of eggs set in incubators and the number of hatched broiler chickens placed is decreasing. Wheat and corn have seen prices collapse, and are currently trading under their cost of production. This means that the cost to plant, harvest and then transport the staple to market is more than it will bring in when sold.

A similar story is occurring in the cattle and milk markets, with prices significantly below their highs. With the general public's inaccurate perception about the swine flu epidemic, pork has also seen its prices plummet as demand for the other white meat has fallen. Each is saying the same thing: the Ag complex is in pretty bad short-term shape.

Taking A Long-Term Value Approach
While the short-term outlook seems bleak for the agriculture commodity group, these low prices could spell opportunity for longer term investors. There are several long-term positives in the Ag arena that should help a long-term bull market in these kinds of commodities.

Starting domestically, farmers have begun to cull their herds and decrease the number of acreage they plant for crops like wheat and corn. Analysts predict that domestic supply will shrink enough to cause a bottleneck once the economy improves.

The demand for food on a global scale is also increasing exponentially. A rapidly growing emerging market population, especially in the BRIC nations, is placing stress on global food production. Analysts estimate that food production will need to rise about 70% over the next 40 years, requiring roughly $44 billion a year in costs to reach that amount. Currently, only about $8 billion is spent on agriculture improvements.

In addition, several food crops must compete with oil. As the world consumes more energy and its prices rise, farmers plant more fuel crops instead of food. Sugar, for example provides 60% of the world's ethanol production. However, it is still the preferred sweetener for much of the world. This again, will strain supplies and drive prices up.

Adding Agriculture To A Portfolio
For investors wanting to add agriculture stocks to a portfolio, the Market Vectors Agribusiness ETF (NYSE:MOO) provides access to 46 companies in each of five agriculture subsectors. These include product and livestock operations, chemicals, equipment and ethanol/biodiesel. This ETF gives access to equipment makers including John Deere (NYSE:D) as well as the high growth fertilizer companies such as Mosaic (NYSE:MOS). The fund charges a reasonable 0.59% in expenses.

Both the ELEMENTS MLCX Grains Index (NYSE:GRU) and ELEMENTS MLCX Bio-fuels Index (NYSE:FUE) exchange-traded notes are great ways to play the food-crop to fuel-crop relationship. Each follows a basket of futures contracts including sugar, corn, wheat, barley and soybeans among others.

For a broad based Ag Futures fund, PowerShares DB Agriculture ETF (NYSE:DBA) is a great choice. While the funds mix of followed futures has changed due to rulings by the Commodity Futures Trading Commission (CFTC), this may be a blessing in disguise. Adding commodities such as coffee, cattle and soybeans, the fund has become more of a balanced overall core futures fund. It will remain to be seen how the addition of these extra commodities adds to performance, but if long-term trends are a key, DBA should continue to perform well. (To learn more, see Use Equity ETFs To Avoid The CFTC Hassle.)

The Bottom Line
With the economic slowdown starting to reverse, agriculture is still trading below where it once was. Continued worldwide population growth will see a growing demand for food and higher prices. Using the current Ag slowdown, long-term investors can position themselves for success.

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