Agriculture beckons

COMMODITY WATCH

There are many reasons why the times ahead will force us to turn back to agriculture, whether it's for buying arable land, growing cash crops or investing in related sector stocks.

After underperforming for more than a decade, the tide seems to have turned for agro commodities. The Dow Jones AIG Commodity Index (DJAIGCI) is made of energy, precious metals, industrial metals, livestock and agriculture. Agriculture has underperformed all other sectors despite its sizeable weightage (30 per cent) and offers a low risk entry point.

The DJAIGCI (Commodity Index) and DJAIGAG (Agriculture Index) are widely tracked global indices. The commodity index bottomed out in 1999 and is moving up from the last eight years.

While the Agriculture Index has only now made a potential double bottom of five years after moving down for more than five years. There is a high chance that this is it for the Agro Index, a move up of 45 per cent from the current 55 to 80 in 2007-2008.

The Global Agriculture Index (DJAIGAG) is made of grains (soyabean, corn and wheat) and softs (cotton, coffee, sugar). The sub-sector analysis of the Dow Jones Agro Index suggests that 'Grains' should outperformance 'Softs'. Though we are bullish on softs too, historically low prices in cotton and sugar keep the sub-sector pegged down.

Of the three softs, only coffee seems ready to bottom near current prices. It's a matter of few trading weeks before it finally starts moving out from sub-100 levels to 180. On the other hand, the local MCX Agri Index, our Indian variant to the DJAIGAG, seems trended up. The index has left 1700 and should be headed to 1800 soon.

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