Powershares Agriculture (DBA): A bull market in grains

"Leading up to last July when inflation peaked for this cycle, food inflation was at its most acute since the 1970s, especially in the emerging markets. Food riots ran wild in many developing countries as the price of grains and other foodstuffs went through the roof coupled by record low harvests in 2007.

"From their highs in 2008, wheat prices have crashed 56%; soybeans are down 42%; corn is off 53%; oats are off 58%; sugar prices are down 16% and Brazilian coffee is down 39%.

"The results are even more compelling if we factor inflation-adjusted prices since 1980 for these commodities. Many of these things are still 50-75% below their inflation-adjusted highs.

"Droughts, one of the most consistent weather phenomena attacking crop yields this decade remains a long-term nemesis.

"In Northern China, a massive drought is getting worse and has scorched the most arable land in fifty years. In Australia, the country has been marred by an unrelenting drought for almost five years. The worst drought in almost fifty years has turned Argentina's once-fertile soil to dust.

"The current drought in California is the worst since 1977 and southwest Texas is seeing the worst drought since 1917-18. An incredible 88% of Texas is experiencing abnormally dry conditions.

"In addition to the above, supplies affected by drought, consider the impact on farms as credit becomes much harder to secure even for successful farms.

"It's a nightmare, especially as grain prices remain well below their highs from last summer. The obvious question after reading all of this is, 'why aren't grain prices trading much higher?'

"My answer is two-fold. First, if not for the credit crisis and the near unraveling of the financial system last fall, grain and other foodstuffs would be trading much higher. This entire deflation episode has attacked all assets, including food and food-consumption trends.

"Also, the big speculators in these markets have been knocked-out by margin calls on de-leveraging. No doubt a part of the bull market we saw last year was driven by frantic money chasing trends to the Moon. When commodities finally broke in July, the party ended. Hedge funds bailed.

"As the global financial system gradually heals, commodities will recover. The first group to rally is the precious metals since November and increasingly, the grains and other agricultural commodities will follow along with energy and the base metals.

"I think it's very important for every investor to buy the PowerShares DB Agriculture Fund. This ETF is almost equally weighted in wheat, corn, soybean and sugar futures.

"It's the purest way to speculate in these important commodities without the associated risk of futures or options trading. DBA stands 44% off its all-time high."

Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.