While going with a broad basket of commodities makes sense, investors who want to be more tactical and select only one or two. McDonald from Bear Traps Report says it may be wise to focus on agricultural or “soft” commodities, and cites three catalysts.
First, there’s “La Niña,” a weather pattern marked by cooler sea surface temperatures in parts of the Pacific Ocean. This creates dry weather in the U.S., which can hurt corn, soybeans and wheat crop yields. Dry conditions in Argentina and Brazil can diminish corn and soybean yields there. Next, agricultural commodities benefit from a declining dollar. And finally, soft commodities are out of favor.
“We view this negative backdrop as highly unsustainable,” McDonald says.
You can get exposure to grains via the iPath Bloomberg Grains Subindex Total Return SM ETN (JJG, $26.17), which invests in five grains: corn, soybean meal, soybean oil, soybeans and wheat. Or you can invest in a broader basket of soft commodities via the PowerShares DB Agriculture Fund (DBA, $18.71), which includes grains, as well as sugar, cocoa, cattle and a few other commodities.
Another option is Mosaic (MOS, $23.67), a publicly traded company that sells fertilizers. When crop prices go up, farmers buy more fertilizer to maximize crop yields. Another plus for Mosiac: India, a big user of crop fertilizers, has low inventories and this could support demand, says Pelaez, from the U.S. Global Investors Global Resources Fund.
