World Food Shortage Risk Inspires Launch of CROP ETF

IndexIQ agribusiness small-cap fund looks to cash in on skyrocketing world food prices

With the risk of global food shortages apparently growing by the day, commodities investors in the exchange traded fund (ETF) market are looking to sink their teeth into what they see as growing agribusiness opportunities.

On Tuesday, IndexIQ launched its IQ Global Agribusiness Small Cap ETF (CROP)  and saw volume in excess of 200,000 shares in its first day of trading. By midafternoon Thursday, volume stood at 324,455, according to Morningstar.

Index data provided by Rye Brook, N.Y.-based IndexIQ show 52 individual holdings in CROP, which has a weighted average market capitalization of $2.39 billion and an expense ratio of 0.75%.

IndexIQ Chief Executive Adam Patti (left) said CROP will provide exposure to global small-capitalization companies engaged in the growing agribusiness sector. Because it is an ETF, Patti said, CROP will give investors “a highly liquid, highly transparent, low cost, tax efficient” way to gain exposure to agribusiness’ growing demand for food crops and shrinking supply of them.

“Global supply shortages, changing dietary demands in emerging markets, growing populations and alternative energy production are among the many powerful factors driving global demand and skyrocketing prices for agribusiness products. We believe these trends are likely to persist for the foreseeable future,” Patti said in a statement.

Top index holdings for CROP include Viterra Inc. (9.08%), Tractor Supply Co. (8.70%), Smithfield Foods (8.04%), Nutreco NV (5.50%) and Ebro Foods SA (4.59%).

The CROP ETF arrives at an unprecedented time in food history: prices recently soared 3.9% in February, the biggest monthly gain since November 1974, marking the continuation of a trend that many economists expect to hold true for at least the remainder of the year. Meat and dairy prices have been on the rise, reflecting higher prices for the corn and soybeans used in animal feed. Earlier this month, the United Nations Food and Agriculture Organization said that world food prices have risen to the highest point since 1990, when the agency first began its food price tracking efforts.

Back in January, legendary investor Jim Rogers confirmed to CNBC that with food shortages coming, now is the time to buy into the food commodities market. As of today, Bloomberg was reporting that Texas was seeing its worst drought in 44 years, with the state’s wheat crop damaged as a result and ranchers forced to reduce cattle herds—a sure sign that food prices will continue to rise.

“In our view, small capitalization companies are best positioned to translate this demand into significant growth,” Patti said. “They are under-represented in other investment options, are typically faster growing and, in many cases, are undervalued relative to mega-cap multi-national companies, making them attractively positioned for growth and for acquisitions by the larger global players. We believe CROP is an efficient vehicle for gaining exposure to this dynamic sector and to these companies worldwide.”

Read ‘Growing Choice, Shrinking Globe’ at AdvisorOne.com.

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