Agricultural commodities are about to take off. And the PowerShares DB Agricultural Fund (DBA) is a great way to play it. Here’s why …
Bullish Force #1: New demand source for live cattle.
DBA’s largest market weighting is live cattle (7.5%), which stands to benefit from an opening in U.S. beef exports to China. China took the initial step in September 2016 by lifting a 2003 ban on shipments of selected U.S. beef products. In addition, following a meeting between President Donald Trump and China President Xi Jinping, expanded U.S. beef exports to China could be right around the corner.
Bullish Force #2: Grains Stabilize ahead of volatile U.S. growing season.
After three years of record grain production, the three-major U.S. grain markets are stabilizing. And DBA stands to benefit from further grain-market gains, as well as any weather induced hiccups into the key summer growing season. This is already beginning in the corn market that’s reacting to a wet start to the planting season. And more upside is possible as hedge funds unwind very large net-short positions.
Bullish Force #3: Growing El Nino risk & soft markets.
Australia’s Bureau of Meteorology, as well as government forecasts from Japan and the U.S., point to growing chances for an El Nino weather event later this year. And this is a bullish force for soft commodities like coffee, cocoa and sugar grown in Australia and Southeast Asia. That’s because El Nino events produce less rain and wreak havoc on normal growing conditions.
Here’s the order to take advantage of a turn higher in agricultural prices …
My recommendation: Use 3 percent of the funds you have allocated to the Materials, Energy & Ags section, to buy shares in PowerShares DB Agricultural Fund, symbol DBA, at $19.90 or better. When filled, place a good-till-canceled protective sell-stop at $16.87.
Meanwhile, continue working last month’s recommendation to buy Range Resources Corp, symbol RRC on a pullback to $24.15. When filled, place a good-till-canceled protective sell-stop at $20.47.
