A major concern for the emerging world is the threat of skyrocketing food prices. At the heart of this are the rising prices of soft commodities. Soft commodities, unlike metals, are consumable. Another way to define soft commodities is soft commodities are generally grown as opposed to mined.   Examples of soft commodities include coffee, cocoa, sugar, corn, wheat, soybeans and fruit. As of late, soft commodities have been on a tear and many analysts and economists believe we are in a secular bull market.

Joining the run up in soft commodities are soft commodities ETFs. But, what’s the main thesis behind the recent soft commodity bull market. For one, we have a global supply shortage of food. At the same time, there are simply too many mouths too feed. Adding fuel to the fire is a recent release by the United Nations (UN) that estimate the world population in 2050 to increase to 9 billion people.

Think about it for a second. Currently, there are about 6.8 billion people. At 6.8 billion people we are already having trouble keeping up with rising food costs. At the same time, we have a shortage of farmers around the world that will most likely be retiring in the next 20 years or so. In China for example, individuals are leaving the farm and looking for work in the factories. And if you do find someone who is wiling to do the work, you will have to pay more than an average salary to do so.

“You can’t find (farm) workers and they’re expensive, over a dollar (7 yuan) an hour,” said Liu Li, a wholesaler hawking Napa cabbage and coriander at Beijing’s Xinfadi, north China’s biggest agricultural distribution center. 

Not too mention, that emerging countries such as China are barely starting to touch the surface in terms of economic growth. For example, in the middle of a sluggish U.S. economy, and looming European debt crisis, China had record imports as imports jumped 30% year over year.

Speaking of emerging markets, there is a huge change in taste that will likely drive demand for at least another 10 years. In simple terms, there is a huge up and coming middle class that are leaving ol’ traditional dishes for foods with more protein such as steamed fish, pork, rice and sliced apples (source). China is also a major consumer of coffee. This despite the fact that it has historically not been a coffee drinking nation. Do not tell that to Starbucks, which is tripling its stores from 450 to 1500 by the year 2015.

Investing in Soft Commodities ETFs

Soft Commodities ETFs- Basket

• iPath Dow Jones-UBS Softs Subindex Total Return ETN (JJS)
• iPath Pure Beta Softs ETN (GRWN)

Cotton ETF

Related posts:

1. Agriculture ETF Guide
2. Precious Metal ETF Guide

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