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Agriculture - an investment theme worth harvesting?

London, 9 November 2010

ETF Securities today publishes a report on the significant price movements agricultural products have experienced recently. The report looks at investment trends, themes and potential implications for the agriculture industry. Specifically, the report focuses on corn, wheat, cocoa, soybeans, sugar, coffee and cotton.

Commenting, Daniel Wills, Senior Analyst at ETF Securities said: "A wide range of agricultural prices have recently hit multi-year highs, including a two year high in corn and wheat and the highest prices for cotton in recorded history (140 years). Inventories, market positioning and changing weather patterns have played a key role in these recent price surges. The increase in prices have also been reflected in the returns of ETF Securities' exchange-traded commodities (ETC); the cotton ETC, for example, has risen 64% year-to-date.

Food prices have trended higher and have been more volatile since 2003, suggesting that food production has been insufficient to match rising levels of demand over the medium term. Reflecting this trend, the United Nations Food Price Index hit a 27 month high in October. This has sparked debate about a re-run of the 2007-08 food crisis."

Key points from the report include:

Agriculture has historically tended to have a low correlation to the business cycle due to its unique role in food production. In addition to its links to longer term emerging market demographics, its low correlation to the business cycle has recently made it popular with investors looking for a defensive investment incorporating long term growth potential.

On a medium term basis, food prices have been trending higher as emerging markets have increased their share of global food demand due to rising populations and incomes. Food products are having to compete for finite resources such as water, land and fertiliser inputs and are increasingly being used for alternative applications such as bio-fuels. As an example, ethanol now accounts for approximately one-third of annual corn output in the US, up from 5% a decade ago.

Current futures positioning in some agricultural products exceed the peak levels of the commodities boom in 2007-2008. ETC investors have largely taken profit on positions built up over 2009 when prices were at extreme lows.

Ends --

To view the report, please click here: 'Agriculture: Recent Developments & Outlook'