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Forget stocks or bonds, here’s where the real money’s being made

Talking Numbers

Forget stocks or bonds, here’s where the real money’s being made

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Forget stocks or bonds, here’s where the real money’s being made

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These three charts spell trouble for the bulls

These three charts spell trouble for the bulls Up next

These three charts spell trouble for the bulls

Gold is the commodity everyone loves to talk about. And, yes, it's up nearly 6% this year, well out performing the stock market.

But the real story in commodities hasn't been gold. It's not even natural gas, despite the "Polar Vortex" or the crisis in Crimea.

The big thing happening in commodities has been agricultural products. That's right – the things you find in your kitchen pantry or refrigerator have been the biggest deal in the market.

Since the start of 2014, the PowerShares DB Agriculture Fund (the DBA), an ETF that tracks the Deutsche Bank Agriculture Index, is up nearly 16%. About 84% of that can be explained by just four commodities: coffee, lean hogs, corn, and soybeans.

Anyone following commodities will tell you that coffee's returns in 2014 put even Tesla's run to shame. While the electric car company's 47% return in the past three months are impressive, coffee is up 58%.

(Read: Getting the biggest caffeine buzz for your buck)

The old Wall Street saying that bulls and bears make money but pigs get slaughtered has been wrong so far this year. Lean hogs are up 49% since January 1st, trouncing feeder cattle's 6% and live cattle's 1% (bear meat futures are not yet on the exchanges).

Contract    2014 Returns
Cattle(FeederCattle) 6%
Cocoa 9%
Coffee "C" 58%
Corn 20%
Cotton #2 9%
Lean Hogs 49%
Live Cattle 1%
Soybeans 15%
Sugar 5%
Wheat 13%
Wheat (Kansas Wheat) 9%


CNBC contributor Gina Sanchez, founder of Chantico Global, believes we may yet see higher prices in commodities.

"Part of that had to do with the fact that there's a drought in Brazil," says Sanchez about the recent run-up in some crops. "That drought is not only going to affect wheat prices, but that's also going to affect coffee going forward because [Brazil is] going into their dry season. They're not sure that they're going to have enough water for coffee crops."

Closer to home, corn's 20% rise in 2014 can be expected to continue, according to Sanchez, because of expectations of dry weather. 

"That's going to affect the production of both wheat and corn in the Great Plains," says Sanchez. "There's a lot that's still out there that is going to continue push prices up as we go into the big production season for agriculture."

(Read: World's biggest soybean grower may not meet demand)

According to Steven Pytlar, Chief Equity Strategist at Prime Executions, the charts also point to higher prices ahead.

"It really wasn't until February we got some long-term technical positive indicators," says Pytlar. "What happened in February tells us we've seen a turn in the trend and we can expect things to go higher."

However, it's not just grocery bills that may be affected by rising commodity prices. Material stocks may also go up, according to Ptylar. He sees a strong relationship with materials stocks and the DBA, noting that the relative price of the Materials Sector SPDR ETF (the XLB) to the S&P 500 has been trading tightly with the DBA for the past several years. Though the world's largest seed company, Monsanto, is about 11% of the XLB, much of that ETF includes companies like Du Pont, Dow, and Freeport-Mcmoran, to name a few.

"It is more closely correlated to agriculture prices right now," says Pytlar of the XLB. "It could translate into some outperformance in materials generally."

To see the full discussion on the DBA with Sanchez on the fundamentals and Pytlar on the technicals, watch the video above.

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