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ETF News And Commentary

Commodities have had a rough ride over the past year, as a strong dollar has dulled the potential of many natural resources. However, we have also seen some solid performances out of a few commodities in the time frame as well.

In particular, ETF investors have seen some solid trading in the Teucrium Corn ETF (CORN - ETF report). This ETF remains the only pure play fund to target corn, and is thus a great proxy for the commodity’s performance.

Thanks to a big drought in 2012 and fears over a global food crunch, CORN was a top performer in the latter half of 2012, adding over 25% in the time frame. While the bulk of the gains came in June and July of the time period, CORN managed to hold firm for the rest of the year and stay at an elevated level.

Lately, however, the trend has been far different with shares of CORN slumping. In fact, the commodity ETF is now down over 8% in the past five days, while the dollar ETF (UUP - ETF report) is flat, so clearly it isn’t really dollar strength that is the issue for this commodity as of late (read Should You Avoid These Agricultural ETFs in 2013?).

What’s Driving CORN?

Instead, the focus in the corn market has been on the inventory report and the resulting bearishness in the space. Inventories, as of March 1st, according to the USDA via Bloomberg, hit 5.399 billion bushels, well above the 4.995 billion that analysts were expecting.

Furthermore, the report showed that plantings will also surge, up from 97.155 million acres to 97.282 million acres this year.  This level represents the most acreage in three quarters of a century, adding to the bearish tone hanging over the corn market.

Unsurprisingly, this shockingly bad report was ill-received by traders in the grain pits, as they pushed corn futures down to their limit before the long-weekend. This also led the CORN ETF to a huge loss, a situation that continued into Monday trading as well, leaving the fund with a nearly 8% loss in two days (read Time to Sell This Commodity ETF?).

While this is certainly unfortunate it shouldn’t have been completely unexpected. We currently have a Zacks ETF Rank of 5 or ‘Strong Sell’ on the fund, along with similarly bearish figures for many of the other agricultural commodity focused ETFs, suggesting that the entire space is probably an avoid.

Better Commodity Plays

This bearish report doesn’t bode well for the agricultural sector going forward, suggesting that low Zacks ETF Ranks may be in store for this segment for quite some time. After all, with such a massive corn crop on the horizon, demand for other products like wheat or soybeans will likely be curtailed, hurting the prospects of ETFs following these commodities as well (see the Zacks ETF Rank Guide).

So, for the time being if investors want to make a play on the commodity space, a look to other segments might be necessary. Currently, we have solid Zacks ETF Ranks on a few commodities in the precious metals market such as platinum (PPLT - ETF report), palladium (PALL - ETF report), and silver (SLV - ETF report), all of which have Zacks ETF Ranks of 2 or better.

Given the current economic environment and the extra bearishness surrounding the agricultural market, it could be time to look to these commodities instead for exposure. Not only do they possess better Zacks ETF Ranks, but the general outlook is far better, especially given the latest news out of the USDA on corn.

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