Powershares DB Agriculture Fund (DBA) Hits $40 for First Time - Soybeans Now a Shortage

I cannot keep up with all the shortages... it appears soybeans are now becoming an issue, as has corn, as has wheat, as has (insert world crop here), as the massive storm in China damaged 40% of the rapeseed (?) crop. It appears soybean is a substitute. As I wrote last week, I've been buying in 100 share lots on each dip in Powershares DB Agriculture Fund (DBA) and its now a 6% position. I do not know when this ETF pulls back; it is well overdue - but with the constant issues afflicting all the underlying commodities [As Asia Food Prices Bite, Analysts Warn of Worse to Come], it is simply difficult to find a rational reason to take profits here, even as the ETF hits $40 for the first time. So I'm just going to sit tight and google "wheat futures", "corn futures", "soybean futures" on a daily basis and watching this crisis unfurl in slow motion as the mainstream media totally ignores it....

• Soybean futures rose to a record Friday, surpassing $14 a bushel for the first time amid expectations of rising demand in China for the grain used to feed livestock and make biofuel.
• Soybean prices have surged 9.5 percent so far this year, buoyed by dwindling stockpiles and growing demand in China, the world's largest soybean buyer. On Thursday, China's agriculture minister said that bad winter storms had severely damaged 40 percent of the country's rapeseed crop — leading investors to bet the country will boost buying of soybeans to make up the shortfall.
• Soybeans had a phenomenal run last year and are poised for another strong performance in 2008. U.S. exporters have already sold more than three-quarters of the soybeans the Agriculture Department predicts for the whole marketing year, which ends in June. Although current supplies appear ample, analysts say the market is headed into a downward trend and that farmers need to plant more soybeans than they did last year — when an ethanol boom led farmers to favor planting corn acres over soybeans.

Remember my thesis - as prices pull demand from 1 crop.... it just creates a shortage in the next. We need both acreage and yields worldwide to increase at much more dramatic rates. And any weather related issues (as we just have had in China) will cause even more stress.

Per Forbes

• In 2007, U.S. farmers planted the smallest acreage of soybean fields in 12 years. Even with this year's price gain , there still isn't sufficient market incentive to get American farmers to plant soybeans.
• A farmer's more tempting alternative is corn, which is cheap to plant and can be used to feed a family, farm animal or be converted into the trendy and tax-friendly alternative-energy, ethanol. Soybeans are expensive to cultivate relative to its yield, hence farmers shy from planting it.
• Richard Feltes, a senior vice president at MF Global Research told Forbes.com, "The bean market is very aware of the need to increase soybean acreage in 2008. The price relationship needs to increase to induce farmers to plant beans instead of corn."

It all comes back to that massive boondoggle, our ethanol incentives. Corn is simply a "sure thing" thanks to the government incentives. At some price point soybeans will be worth the risk. We saw this play out in wheat. But can the world handle these price points? What a mess.

Anyhow, here's a chart you can take home to mom...



Long Powershares DB Agriculture Fund in fund and personal account