Analysts at 720 Global believe that they have identified a coming transition that could be very profitable for traders. This transition has nothing to do with the stock market or the business world. It has to do with the weather.
720 Global believes that the possible transition from a historic El Nino to a La Nina weather pattern could have a major impact on the prices of soy, wheat and corn in the US. La Nina patterns tend to result in higher chances of warmer, drier summers in the Midwest ad Plains states, which typically leads to weaker harvests and higher prices for these three major agriculture commodities.
“The data is very compelling, however investing in corn, wheat or soybeans is not for the average investor,” 720 Global wrote. “To help overcome the difficulties and traps that typically torment inexperienced commodity investors, we sought an ETF that might replicate such an investment in the commodity markets.”
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According to 720 Global, that investment is PowerShares DB Agriculture Fund (NYSE: DBA). Although the fund is an acceptable size and liquidity and has 37.5 percent exposure to corn, soybeans and wheat, the report stresses that investors should be fully aware that it is nowhere close to a pure play. In fact, 62.5 percent of the fund is comprised of cotton, sugar, coffee and other agriculture commodities.
Disclosure: the author holds no position in the stocks mentioned.
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