What happened to the 99 cent burger? If you have a house full of teenagers, you know firsthand about the effects of inflation.
Food prices have skyrocketed as emerging market countries demand more food, steadily increasing their caloric intake in the middle of a population growth spurt. This, along with some of the worst years for weather and natural disasters, has consumers' stomachs growling.

One way advisors are making lemonade out of the high price of lemons is to look to agriculture-related exchange-traded funds (ETFs). Fund flows are increasing as advisors up their commodity allocations via the growing list of "Ag" ETFs.

Nature's Effect On Agriculture Prices
Today's harvest projections don't measure up to the levels that people want to consume. The U.S. Department of Agriculture has cut its harvest projections for corn, soybeans and wheat, adding fuel to the commodity-rally fire.

Corn prices shot up 69% last year as production in the U.S. dropped 4.9% on bad weather, which will leave U.S. inventories at their lowest level in 15 years, on top of an already-low global inventory.

Coffee was up 65% last year, reaching its highest level in 13 years. Two-thirds of the world's supply comes from just three countries: Brazil, Vietnam and Colombia. Unfavorable weather conditions have impacted production, which resulted in the depletion of U.S. coffee reserves to the lowest point in a decade.

Wheat prices jumped 47% during a year when the winter wheat acreage was the smallest since 1913. Surging worldwide demand and bad weather have both contributed to reductions in yield estimates. The U.S. Department of Agriculture slashed its forecast for global wheat production in 2010 and 2011. Production has been hampered by severe drought in Russia (which caused the country to ban exports of the crop), hot weather in Iowa and the EPA's recent decision to raise the ethanol blend rate.

After a record harvest in 2009, U.S. soybean production fell in 2010, causing a 44% increase in prices. The tightness in supply resulted in a 25 million bushel drop in estimated inventories.

Warnings from the U.N. about the threat of drought in countries such as China, the world's largest wheat producer, have an impact on prices as well. In the end, it all comes down to two primary things: too little rain in Russia and South America, and too much rain in Australia and India.

Population Increase Boosts Demand
Concerns about a food shortage are becoming a reality. The world's population is quickly expanding; it's projected to surge to 9.1 billion by 2050. The United Nations' Food and Agriculture Organization expects the growing middle class to consume a more diverse variety of foods. The U.N. says the world will face a food price shock, and agricultural commodity prices are likely to rise further. There is nothing indicating we have reached a peak; prices could continue to rise well into 2012. Agricultural products such as wheat, corn, vegetable oil, dairy products, sugar and meat are all at risk.

The rising middle class around the globe is creating increased demand for agriculture products and taking commodities to new highs. Often with an improved income comes greater demand for a protein-rich diet, which requires more corn that's used to feed livestock. As a result, the demand for non-staple foods such as dairy and meat are inflating the international food bill. World food producers would have to increase production by almost 70% to meet that increasing demand.

Additional Factors
Agricultural land that has water is becoming a hot commodity in its own right. Some predict such land may be very valuable in the future, fueling a rush to invest in farmland. Commodity guru Jim Rogers has already predicted agriculture will be one of the greatest industries over the next 20 years.

The rising cost of raw materials to harvest crops puts pressure on the price. From labor, equipment and transportation to marketing, the costs add up.

Another reason food prices may stay elevated longer than expected is that land ordinarily used to grow food is being turned over to biofuel production. Clean energy laws and increased interest in green technology are leading to the greater use of biofuels such as ethanol as sources of energy.

So what is a person to do? You have to eat. But there is a way to hedge your grocery bill with ETFs. Agricultural ETFs come in a variety of shapes, sizes and structures. Fortunately, advisors have more and more choices of how to combat inflation and perhaps profit at the commodity level via companies tied to this industry.

Futures-Based ETFs
Futures-based agriculture ETFs attempt to reflect the performance of the underlying commodity or basket of commodities by purchasing futures contracts. Additionally, ETFs that hold futures contracts have uninvested cash, which is usually placed in government bonds. The interest is used to cover any expenses of the ETF. A majority of the futures contracts traded on the exchange floor are settled or swapped for cash before the expiration date.

ETFs that own futures contracts always roll those contracts forward; they never take delivery. Contracts in ETFs are sold to someone who will take delivery of the commodity in exchange for a contract that has a date that's further out. But depending on the makeup of the commodity's futures curve, rolling futures contracts may create profit or loss for the ETF. That's because commodity markets are always in a state of backwardation or contango. Contango is when the futures price is higher than the spot price. Backwardation is when the futures price is lower than the spot price.

PowerShares DB Agriculture Fund (NYSE Arca: DBA)
Teucrium Corn (NYSE Arca: CORN)

Equities-Based ETFs
Equities-based agriculture-related ETFs try to reflect the performance of agricultural commodities producers. The financial performance of the companies could be leveraged to the underlying commodity, as well as other factors that affect the profitability of production. Consequently, the ETFs may not mimic the performance of the underlying commodity. Equities don't give pure price exposure, but they do allow you to capitalize on better profit margins as a result of rising prices.

Jefferies | TR/J CRB Global Agriculture Equity Index Fund (NYSE Arca: CRBA)
PowerShares Global Agriculture Portfolio (NYSE Arca: PAGG)
IndexIQ Agribusiness Small Cap ETF (NYSE Arca: CROP)
Market Vectors-Agribusiness ETF (NYSE Arca: MOO)

ETNs
Agriculture-related exchange-traded notes (ETNs) are non-interest-paying debt instruments. An ETN's price will try to reflect price changes in the underlying commodity index. ETNs are debt instruments backed by the full faith and credit of the issuer. They follow an underlying index or product, and anyone can buy them. Since they are debt, if the issuer goes bankrupt, you become another creditor and you'll have to get in line. ETNs also have maturity dates.

UBS E-TRACS CMCI Food Total Return ETN (NYSE Arca: FUD)
UBS E-TRACS CMCI Agriculture TR ETN (NYSE Arca: UAG)
UBS E-TRACS CMCI Livestock TR ETN (NYSE Arca: UBC)
UBS E-TRACS CMCI Agriculture TR ETN (NYSE Arca: UAG)
iPath DJ-UBS Agriculture TR Sub-Idx ETN (NYSE Arca: JJA)
iPath DJ-UBS Softs TR Sub-Idx ETN (NYSE Arca: JJS)
iPath DJ-UBS Cocoa TR Sub-Idx ETN (NYSE Arca: NIB)
iPath DJ-UBS Coffee TR Sub-Idx ETN (NYSE Arca: JO)
iPath DJ-UBS Cotton TR Sub-Idx ETN (NYSE Arca: BAL)
iPath Dow Jones-UBS Sugar Sub-Idx Total Return SM ETN (NYSE Arca: SGG)
iPath DJ-UBS Livestock TR Sub-Idx ETN (NYSE Arca: COW)
iPath DJ-UBS Grains TR Sub-Idx ETN (NYSE Arca: JJG)
ELEMENTS MLCX Grains Index TR ETN (NYSE Arca: GRU)
ELEMENTS MLCX Biofuels Index TR ETN (NYSE Arca: FUE)
ELEMENTS Rogers Intl Commodity Agri ETN (NYSE Arca: RJA)

Things To Consider
Tax implications are different for ETFs that hold futures; they often generate a K-1 form instead of a Form 1099 at tax time. Doing your due diligence on this is necessary.

Investing in agriculture and commodities is mainly a pure bet on prices based on basic supply and demand models, whereas stocks and bonds are income-generating investments.

The Commodity Futures Trading Commission (CFTC) is continually looking at limiting speculation in order to temper prices through position limits in the futures market.

With the choice of commodity ETFs available, advisors have many more options today in an asset class that was quite limited just five years ago.

Tom Lydon is editor and publisher of ETF Trends, a Web site with daily news and commentary about the fast-changing trends in the exchange-traded-fund (ETF) industry. Lydon is also president of Global Trends Investments, an investment advisory firm specializing in the creation of customized portfolios for high-net-worth individuals. Disclosure: At the time of publishing, Mr. Lydon's clients owned IndexIQ Agribusiness Small Cap ETF (NYSEArca: CROP).