Agriculture Break Out Relative to Energy, Commodity Index

Mike Panzner points out that as Oil prices have dropped, Agriculture Commodities are breaking out (especially relative to Energy and/or Commodity Index).

"Many of those who take an interest in global commodity markets have commented on  the relative attractiveness of the agriculture sector, especially in light of the demand created by rising per capita incomes in nations such as China and India.

With the technical pattern suggesting that the sector is breaking out (and hitting new 5-month highs) versus oil and an index of various commodities, now may be the time to jump in."

To make the two comparisons on the accompanying chart (below), Mike used the PowerShares DB Agriculture Fund (DBA) / DB Commodity Index Tracking Fund (DBC) PowerShares DB Agriculture Fund (DBA) / DB Energy Fund (DBE).


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What's been said:

Discussions found on the web:
  1. Ross commented on Aug 24

    Guess I need to plant beans in my haymeadow next year. I can see beans in the teens. Cotton is the laggard along with sugar. Got a better idea. We need to hijack an ethanol tanker. Anyone know how to re nature de natured moonshine aka ethanol? Lets see now, 50’000 gallons of white lightnin at $3 a quart yields how much gross profit?
    Just musing, y’all.

  2. KP commented on Aug 24

    I thought China’s bag for a LONG time was ag EXPORTS. Don’t ya think they have enough already?

    I don’t buy it. Just come out and say…it’s the next bubble target since thus far Hurricane season has been un-eventful.

  3. Fred commented on Aug 24

    Ethanol is a scam, and the idea of promoting it as a “solution” is as dumb as a bag of hammers. Bush is an idiot on this one.

    – can’t transport it in pipelines

    – takes more energy to make than it gives

    – drives the costs of REAL food higher

  4. Pool Shark commented on Aug 24

    Wonder if agriculture includes gold farming…

    Spot gold is spiking this morning.

  5. Mike M commented on Aug 24

    Anybody seen beer prices lately? Bummer.

  6. Marcus Aurelius commented on Aug 24

    Not surprising – food and unprocessed agricultural commodities are bedrock-level fundamentals in any economy.

    Ethanol might spike the price of corn, but it is, itself, not an agricultural commodity (no more than a shirt is just a repackaged cotton fiber). I agree with Fred: ethanol is a scam. I also agree with Ross – white lightning (especially good whit lightning) is a much more reasonable corn-based industrial product.

  7. wally commented on Aug 24

    Ethanol a scam? Maybe. But if it moves food prices up compared to oil it is advantageous for a food producing country to produce it. No reason food should be cheap while oil is expensive. Burn food in our cars until somebody is willing to pay us not to.

  8. dark1p commented on Aug 24

    Yeah, what Fred said.

    How our brilliant leaders are getting away with a scam that only benefits their pals in agribusiness….

    Oh, wait. It’s the same way they’ve gotten away with every scam that’s lined their and their pals’ pockets. Lying to a really stupid, complacent populace that has no critical thinking abilities.

    Sorry. My bad.

  9. donna commented on Aug 24

    Don’t go for the ethanol garbage. Biodiesel is the way to go.

    But at least the ethanol craze may get the damned high fructose corn syrup out of our food….

  10. mhm commented on Aug 24

    Fred, ethanol can be transported in pipelines, stored in tanks and shipped across the world just like gas/oil. Ethanol is expensive and drives food prices higher in the USA/MEX, but that is due to US using corn to produce it.

    Donna, ethanol and biodiesel have different uses. Brazil is producing plastic from ethanol, not just using as fuel. Yes plastic from ethanol, not from oil.

    (Brazil produces cheap and efficient ethanol from sugarcane, not corn)

  11. zero529 commented on Aug 24

    Corn-based ethanol doesn’t make a lot of sense. Although it is NOT energy negative (unless you follow Pimental’s 30 year old obsolete assumptions on production efficiency), the corrosiveness and infrastructure needs make it too hard to use.

    Cellulosic (we’ve already hashed out the fact that hydrolyzed cellulosic feedstocks are not here yet, but I think they have a real future) butanol is a better way to go. We used to make hundreds of thousands of tons of the stuff in fermentors each year (from corn and molasses, too expensive now), before WWII.

    Why the big push for ethanol? Because The Man knows it doesn’t really threaten Big Oil. Why the obscurity surrounding butanol? Because The Man knows it actually stands a chance to taking hold. jmho.

  12. Ross commented on Aug 24

    Little basic chemistry 101. Damn near anything carbon based can be made from any kind of carbon. Aspirin is made from coal tar or even natural gas. Plastics are made from oil and gas. I had a professor who long maintained that it was a sin to burn natural gas as a boiler fuel since gas is so easy to ‘crack’ into high value added products. I maintain it is a sin to turn corn into ethanol. The economics suck. I prefer to feed it to my chickens…Ethanol cannot be pipelined. It picks up water.

  13. mhm commented on Aug 24

    “Ethanol cannot be pipelined. It picks up water.”

    For every problem there is an optimal solution… But you must pursue it instead of just complain. You have to ask yourself why the US insists in use corn and anhydrous ethanol. Expensive, corrosive and unstable… Do you know hydrated ethanol is much easier to handle and works just as well?

    For the weekend:

  14. MarkTX commented on Aug 24

    The US version of Ethanol is a scam….

    but if it drives prices higher, then full steam ahead because that is what the “new”
    US economy is really about – making prices higher (used to be called inflation) !!!!

    BTW looks like all indexes will end the week on daily/weekly highs….That 5 day black box program sure did a hell of a job!!!

  15. Kondratiev commented on Aug 24

    Anyone have any insight to DBA and its tracking error compared to its index. I have read and heard that it is pretty poor and ETFs like this suffer when futures prices are consistently higher than spot prices.

  16. wally commented on Aug 24

    Look, there are not technical problems with ethanol. It has been used in low concentrations in the US for close to two decades and is used in the midwest in 85 percent versions today. Brazil uses it widely – nearly 50% of the vehicle fuel market.
    Why pay an exploitive price for oil and sell food cheap? That’s just dumb.

  17. Ross commented on Aug 24

    Ah, the threads of misconclusions are woven into the fabric of our lives. Wikipedia as a good scientific source for anything is absurd. They use government stats to ‘prove’ the cost effectivness of corn based ethanol at a ratio of 1.25 to 1. Same government stats that tell us that unemployment is 4.5%, inflation (and subprime) is contained and we have a strong dollar policy. (insert laugh track here)..Ethanol is a joke. I well remember synfuels and THEIR subsidies in the early 80’s.

  18. techy2468 commented on Aug 24

    Ross…wikipedia is maintained by people like you and me, if you have time and know a better source…why not update it.

    some one just put gov stats since it was easy to find.

  19. Ross commented on Aug 24

    You are correct. Actually I do use the site but mainly for mundane factoids and some useful stuff as well. I like Wikipedia actually. But I have seen some really bad info amounting almost to disinformation. Sorry for the slight. Bad Friday!

  20. GreenMachine commented on Aug 24

    All the ethanol haters who don’t have advanced chemistry degrees and are unaware of new technology might want to reconsider cellulosic bioethanol. When you think about how much waste we Americans produce and the limited capacities of our landfills, you might see the huge opportunity in producing ethanol from leaves, grass clippings, wood chips, sawdust, SORTED MUNICIPAL SOLID WASTE. The technology is there and it’s already being done. Check out a pure play like BFRE.OB. (I own this risky little gem and DBA.)

  21. Robert commented on Aug 24

    Ethanol can be transported in pipelines, but the pipelines must be optimized for ethanol production (new ethanol friendly seals) and “pigged” more frequently than usual. Government subsidized corn ethanol IS ridiculous – If anything, the government should offer a hefty reward for the first company which comes up with a viable production and distribution process for cellulosic ethanol. Using MY money to pave the way for something which we may or may not even discover (economically viable cellulosic ethanol from crops grown in a temperate climate) is ludicrous and insulting… But of course, it all boils down to dirty politicians, the agricultural lobby, and the upcoming election(s).

  22. alexd commented on Aug 24

    Ok every one back in their corners!

    First I am going to put in my one cent. (It used to be worth two but know it only buys one)

    First I am not an expert I am just going to try to apply logic and what I know.

    As far as the food thing goes people have to eat. You can reduce your quality of food just so far until it is a bad situation.
    So I do think there is some merit to the food argument. Look at SEB not a low price stock. I bet if oil prices moderate and food goes up they will be in a nice spot. When you are in the commodity and transportation business having what you sell go up in price and having the cost of moving it go down is very sweet.

    Ethanol is bullsh. We have a tariff on alcohol from Brazil and we subsidize our farmers. Is logic in charge here? It is more efficient to make alcohol from cane sugar (or maybe sugar beets) than from corn. More sugar content means more alcohol. Alcohol is bad to transport in steel pipes due to corrosion. Of course we will keep workers that we will give temp green cards busy to fix em every eight years or so. Makes me want to go out and buy X.

    I hate to tell you guys but there is a problem with the internal combustion engine. Combustion.

    Look at this

    Just to show blessed excess is will still be available. The same folks are involved in an electric British supercar but that is another story.

    Using nano tech there has been some recent work done in creating cheap solar cells with 40-60% efficiency. Now if we had a battery we could charge up on solar at another place like home or what ever all of a sudden there is very little reason to have a gas station, or a jiffy lube, or for that matter a giant service department a the auto dealer. (So if this happens you know what to short.)

    The main point being as long as the argument requires driving while we look at a rear view mirror we are screwed.

    Not to forget, increasing the café standards would decrease the amount of oil we import. Which would improve our balance of payments, which would mean more money in the country, so we could pay off the debt that our rah rah, go America go govt. sells to Communists! But it is almost impossible for our country to make a massive effort at anything worthwhile. But if economic forces hold sway things will start to change.

    Look for the woman, follow the money.

  23. Peter D commented on Aug 25

    The best way to play this is to buy the good agrichemical stocks. (Fertilizers, seeds, herbicides, etc)Many have run up a lot already over the last few years but there are still some good bargains: Syngenta (SYT) in Switzerland, Bunge (BG) US HQ but mainly operates in South America, MOSAIC (MOS)USA. The real sleeper may be MIGAO (MIGGF), a Chinese company listed on the Toronto Stock Exchange and with a strong Canadian presence in terms of money and management. Also, trades on the NY OTC. China consumes 25% of the world’s fertilizer production and faces critical food shortages.

  24. brazos commented on Aug 25

    To Zero 529: The valuables in natural gas are already being stripped out and cracked in large ethylene cracking units. What is burned is a high percentage of Methane– CH4. In our case, after we crack propane, ethane, and Denatualized Gasoline, we still end up with a surplus of Methane, that we use in the furnaces to crack the feedstock, and sell it to others.

    AGRICULTURAL COMPANIES – Nobody mentioned one of the largest fertilizer companies in the worl – Yara International (YARIY)


  25. Kp commented on Aug 25

    Ethanol blends contain less energy than the same volume of gasoline alone. So you get less mileage out of the same amount. You are putting less oil in your tank at a time but going through more tanks over a given distance. At the same time you are removing food supply. So now we have NO decrease in the amount of oil used and an increase in the consumption of food.

    W. T. F. ?

  26. zero529 commented on Aug 25

    brazos: I think your reply was meant for Ross, not me(?)

    Kp: I will assume you’re not a troll. The energy density of ethanol is indeed less than that of gasoline, but it still contains energy that can be used to operate an engine. So you are in fact replacing some of the gasoline energy with ethanol energy and reducing the amount of petroleum being used.

    The biggest debate is over whether using corn to make that ethanol is a reasonable approach. Most people here agree that corn is not a good feedstock because it requires a lot of inputs to produce. Developing methods to use cellulose as a starting material would drastically improve the economic and environmental costs of ethanol production.

    There are additional debates over how good of a gasoline extender ethanol is. It is widely assumed that water should be excluded from fuel formulations, because it is generally believed that water will lead to corrosion. Ethanol loves to absorb water, so if you want to keep water out, you have to make a lot of changes to the infrastructure to handle ethanol.

    As I said above, I favor butanol over ethanol. It can use the same feedstocks (maybe even a greater variety), it has a higher energy density than ethanol, it doesn’t suck in water, and it can be used at a higher concentration than ethanol in unmodified engines.

  27. Kp commented on Aug 25


    “Kp: I will assume you’re not a troll. The energy density of ethanol is indeed less than that of gasoline, but it still contains energy that can be used to operate an engine. So you are in fact replacing some of the gasoline energy with ethanol energy and reducing the amount of petroleum being used.”

    Thanks for the benefit of the non-troll doubt. I was unaware that I needed your permission to have an opinion and express it.

    Now on to your response.

    Ethanol/Gasoline blends are an inferior substitute for gasoline alone. You seem to be missing my original point, so I’ll try again. You seem to agree about the energy content assertions I made. Good, but you are missing the next logical consequence of that fact. Ethanol does nothing but dilute the energy pool. A certain job requires a certain amount of energy, period. All ethanol does, especially corn based, is rob food supply. If there is a way to produce it from currently waste ag materials….THAT would make sense. The current processes are foolish, a trait no doubt inherited from its supporters.

  28. zero529 commented on Aug 25

    You are certainly entitled to your opinions, but when you say:

    “So now we have NO decrease in the amount of oil used and an increase in the consumption of food.”

    You are stating a “fact”, not an opinion. And in this case, saying that there is no decrease in oil if you go the same number of miles on an ethanol-gasoline blend is an inaccurate statement of “fact”. That would only be true if ethanol had no energy content. The plainness of that point was what made me think your original post was possibly a troll.

    Almost all of us here (including me) are in agreement that converting a resource-intensive food item into something you burn in a car engine is misguided (i.e., I don’t think corn-based butanol as a transportation fuel is viable either).

  29. KP commented on Aug 26

    Ethanol creates a positive feedback loop which requires more petroleum(and other forms of energy) for it to be implemented. It is nothing more than borrowing from one section of the total available pool of energy to feed another and due to the inefficiencies of creation, transportation, and implementation it’s net effect is less than the current setup. It is a waste of time, money, and energy. The only way to replace a form of energy is to bring in a new form that was previously not part of the original pool. Solar, wind, (insert name here).

    Ethanol is a farce, a fleece, and an ag subsidy. It is the result of politicians solving scientific problems.

    Battery technology is here and it is ready despite what you have heard. Current auto manufacturers simply lack the expertise and capital to implement it.

  30. zero529 commented on Aug 26

    I’m guessing that you are basing your views on the work of Pimental, who says that ethanol has a negative energy ROI. I think his conclusions are wrong because (as I mentioned above) his calculations are based on production efficiency values from nearly 30 years ago. I believe you and I will have to agree to disagree on this. You’re right that there’s a conservation of energy problem here, but the contribution of solar energy to chemical energy is not insignificant.

    You are right that corn-based ethanol is a farce. God, I hate it when people keep arguing with me on points that I’ve already said I agree with them on.

    Lastly, I agree that internal combustion engines suck and I have no problem with a shift toward electric vehicles. But the fact remains that we have millions of ICE vehicles on the road and they will be there for awhile still, and if there’s a sensible way to transition them to a fuel requiring less petroleum, then I say go for it. We’re not going to replace all of those vehicles with electrics overnight.

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