Just as Bill Gross is seen as the "Bond King," Jim Rogers is looked upon by the commodity community as the hard asset guru. As one half of the famous Quantum Fund, along with George Soros, Rogers made a name and a fortune for himself. He later went on to help popularize natural resources investing for the average Joe, lending his propriety indexes to various funds like the Market Vectors RVE Hard Assets Producers ETF (ARCA:HAP) and the ELEMENTS Rogers Commodity ETN (ARCA:RJA). So given his standing in the resources community, when Rogers speaks, investors listen. His latest advice could see investor's portfolios "growing tall."
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The Best Commodity Investment for the Next 20 Years
Despite the fact that agricultural commodity prices have been riding high over the last few years, Rogers predicts that there could be more gains ahead. With growing populations across the emerging world along with the rising middle class tastes, feeding the planet will continue to be a major problem going forward. That will ultimately drive up the prices for arable farmland as well as prices for various key crops like soybeans, corn and wheat. Overall, Rogers thinks that the sector could be the best place for investors over the next two decades as these trends take place.
There's certainly some validity to Rogers' argument for having agriculture investments. The U.N.'s Food and Agriculture Organization (FAO) predicts that the world's population will grow to nearly 8.3 billion people by 2030. That will put serious pressures on the world's food supply. The FAO estimates that a surge in population will see developing countries requiring an additional 120 million hectares for farmland. Cereals production will need to grow by an extra billion tons annually by 2030 to feed all of those people.
In his latest missive, Rogers outlined a few ways for the average Joe to profit from the long-term trend in agriculture. With the broad commodities complex trading downwards over the last few weeks, now could be the best time to strike on the sector. Here's how to take his advice.
Bet on Direct Prices
Currently, prices of various agricultural commodities are still relatively cheap compared to those of metals and energy. To that end, Rogers predicts that the most profitable way to bet on agriculture is to invest in commodity futures. The PowerShares DB Agriculture ETF (ARCA:DBA) is the largest fund in the sector, both in assets under management (AUM) and trading volume, and can be used as a proxy for the sector. The exchange-traded fund (ETF) tracks a basket of 11 different agriculture commodity futures including wheat, corn and cotton. Since inception, the fund has managed to outperform the S&P 500 and charges 1.01% in expenses.
Additionally, the diets of the rising middle class are trending towards more protein and worldwide beef consumption continues to grow. That will mean big gains in livestock futures as well as in grains which are required to feed those cattle. Both the iPath DJ-UBS Grains ETN (ARCA:JJG) and UBS E-TRACS CMCI Livestock ETN (ARCA:UBC) are great ways to play those sub-sectors.
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Add Agricultural Equities
With the long-term trends pointing in a favorable direction, it stands to reason that companies that operate in the agricultural sector will benefit from the growth. Both the Market Vectors Agribusiness ETF (ARCA:MOO) and the iShares MSCI Global Agriculture Producers (ARCA:VEGI) offers global exposure to some of agriculture's biggest companies like Deere (NYSE:DE) and seed maker Monsanto (NYSE:MON). Cute tickers aside, the broad funds should see higher gains as the underlying companies see increased demand for their products.
Buy a Farm
Finally, Jim Roger's last piece of advice is to buy farmland. By owning a piece of agricultural land, investors can realize cash flows based on the proceeds of production. Despite the run-up in land prices, the guru says that farmland is only in its "third-inning" and there will be more upside in the future. While physically buying a working farm requires a huge amount of initial capital, both Cresud (Nasdaq:CRESY) and Adecoagro (NYSE:AGRO) own a variety of farmlands and farm operations in fertile South America, and will benefit from the world's need for more food.
The Bottom Line
As the resident expert on commodities, when Jim Rogers speaks his mind, it pays for investors to listen. His latest advice is that agriculture will be the king of the commodity hill over the next few decades. As emerging market nations continue to grow, feeding their expanding populations will continue to be a paramount issue. The previous funds, along with the IQ Global Agribusiness Small Cap ETF (ARCA:CROP), make ideal ways to play the trend.
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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.