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ETF News And Commentary

Although ‘soft’ commodities saw pretty sluggish trading last year, the scenario turned around for a basket of agricultural commodities to start 2014. Along with commodities like cocoa, coffee, wheat and sugar, this bullish trend also holds well for Corn– one of the most important U.S. crops and key food staples worldwide (read: Corn ETF Continues Plunge).  

The grains suffered as much as 40% in 2013 thanks to an oversupply scenario. This was the steepest decline in corn since 1960. As one can guess, this massive fall undervalued the grain, offering some scope for outperformance this year. The ETF based on this crop – Teucrium Corn ETF (CORN) added more than 6% year to date and is likely to add more gains in the coming weeks too.

Reason Behind the Bullishness

There are several reasons behind this bullishness. Corn rallied to its highest level since September last year, as tensions flared up in Ukraine, which is a leading exporter of a competing grain, wheat. The Russia-Ukraine strife played its role in driving corn prices this year.  Since the tensions have not yet cooled down, we can expect some more gains out of this grain in the sessions ahead.

Also, as per the U.S. Grains Council, corn prices are on the rise in Ukraine as farmers are pulling back sales, holding grain as a hedge against the country’s weakening currency. As exports from Odessa and other Black Sea ports carry on with vessels being stacked, increased prices may soften future sales.

The surging livestock industry is also boosting the demand for corn as it is used as feed (read: Is It Time To Buy The Livestock ETFs?). Also, as per the Bank of America Merrill Lynch analyst, the corn acreage in 2014 will be less than  2013 planting as acres are shifting from corn towards soybeans.

Inclement weather conditions in Argentina – another top producer of grains— could eat up acreage and transfer it to soybeans until the planting season ends in January. Planting is expected to be lower even in the Northern Hemisphere this season (read: Corn ETF Surges on Surprise Harvest Estimate Cut).  

Although many analysts including some from Bank of America Merrill Lynch raised some concerns regarding price appreciation in the grain, we expect a growing global economy and some reduced production in many regions to support the price of corn this year. Thus, a look at the top-ranked corn ETF could be a good way to target the potential price rise in the commodity.

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class (Read: Zacks ETF Rank Guide). Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium or High.

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.

For investors seeking to apply this methodology to their portfolio in the agricultural space, we have taken a closer look at the top ranked CORN. This ETF has a Zacks ETF Rank of 1 or ‘Strong Buy’ (see the full list of top ranked ETFs) and is detailed below: 

CORN in Focus
 
The fund provides investors direct exposure to corn futures. The product is expensive as it charges 199 bps in fees per year which is much higher than the average expense ratio prevailing in agricultural commodities ETFs. 

It trades in moderate volumes of nearly 120,000 shares on average daily basis that increases the trading cost in the form of a somewhat wide bid/ask spread. The fund has so far attracted $125.9 million in assets this year. The fund is up more than 6% this year.

As such, CORN’s Zacks ETF Rank of 1 or ‘Strong Buy’ also indicates that the fund might witness a significant upturn in the months ahead. Presently, the fund is hovering in the middle of its 52-week range. We believe that there is further room for upside for the product covered, based on the current supply-demand dynamics. 

Technical indicators also show signs of hope. The Relative Strength Index for CORN is presently 54.37, indicating that the fund is yet to reach the overbought territory, and could see more gains in the coming weeks.

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