David Gillie is a Contributing Editor and subscriber to the ETF Digest.
He has been an Engineering Consultant for multi-million dollar construction claims, President and Founder of Envirospec, Inc. (Robotic Pipeline Inspection Equipment) and owner of David Gillie Woodworking & Design.
He divides his time between Wilmington, North Carolina and Fort Myers, Florida.
No matter what, people have to eat - 7 billion of them now globally.
You can't eat your iPhone. You can't eat your gold coins. And you can't eat oil.
Feeding the world is big business and agriculture is a high tech industry. Farmers have to maximize crop yields with exact fertilizer blends for individual crops and conditions. Grains, fruits and vegetables have to be hybridized and engineered to grow outside of ideal soil conditions and climates. A John Deere harvesting combine is a complex piece of technological equipment costing as much as a Lamborghini ($250K). Supplying the needs of farmers to feed the globe is one of the world's fastest growing industries.
Market Vectors Agribusiness (MOO) ETF is the best way to hold a basket of agricultural supply companies.
QE2 dollar devaluation brought a monster rally to grains in 2010. Hype and rumor lead to a hoarding of grains and resulted in a glut. Uncertain economic outlook drove to reduction of stockpiles. Fickle as commodity traders are, they then looked to see what the next "hot commodity" was and the Ag sector faded through much of 2011. The need for food hasn't faded and recent El Nina weather patterns have brought droughts expected to continue through spring 2012. Short supplies equals higher prices.
As with other commodities, Ag is highly responsive to movements in the Dollar (.DXY). With the Dollar currently at its 52 week high nearing 82.00, traders are already moving into Ag (JJA) anticipating a Dollar decline and cyclical expectations of the sector. Fertilizers had been hard hit with the Ag sell-off and rising Dollar. Negative sentiment has been strong. However, grain prices tend to front run fertilizer prices (or actually, fertilizer lags grains as farmers prepare for new crops) and the renewed interest in Ag is encouraging. As further confirmation, MOO's largest holding, Monsanto (MON) crushed analyst's expectations in its recent quarterly report and projection for 2012. Deere (DE) has been especially strong and could have a "Golden Cross" of the 50 day moving average crossing above the 200 day moving average soon. Potash (POT) is showing a good bottoming process.
MOO has some very interesting chart patterns.
The August, October and December lows have formed an inverted head & shoulders pattern - a bullish set up. We also have the upper and lower trend lines forming a wedge pattern, which could break out to the upside -- but not yet! Money Flow Index shows us we're heavily overbought, as well as, Stochastics. RSI has begun a rollover at the top of its normal highs.
MOO is very likely to top out at $50 on low volume and not break the upper trend line. At that point, a retreat to lower trend support should be around $46-$47. Timing and price will be ripe then.
Watch for (JJA) to continue in strength and for a decline in the Dollar. If we see these two conditions, a bounce off of the lower trend line could send MOO to the MOOn. Okay, maybe not the moon, but a $57 target is well within reason.
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