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Why Agricultural Commodity ETFs Are Soaring This Year

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Agricultural commodities are surging this year buoyed by weather-related supply concerns and higher demand that has encouraged investment fund buying. Corn futures jumped to their highest since June 2013, wheat climbed to a seven-year high, while soybeans hit an eight-year high. Investors should note that the strength in corn spilled over to wheat and soybeans.

The agricultural commodities also got a lift from a weakening dollar, which tends to make U.S. grains more competitive on the export market. Additionally, strong demand from the livestock sector boosted China’s imports of soybeans, as well as grains like corn and wheat (read: U.S. Dollar to Strengthen? ETFs to Gain/Lose).

Further, commodity funds were the net buyers of Chicago Board of Trade corn, soybean, wheat, soyoil and soymeal futures contracts as of Apr 22. This has been driving prices higher.

Let’s take a quick look at potential supply disruptions of the three grains below:

Corn

The adverse weather conditions wreaked havoc in several major growing regions of corn, delaying the crop plantations, especially in the United States and Brazil. The U.S. Department of Agriculture said that cold weather could slow the germination of newly seeded corn. U.S. corn crop was 8% planted as of Apr 18. The crops from 2020 harvest have also been deteriorating (read: Corn ETF in Focus on China's Buying Spree).

Wheat

Wheat logged its biggest weekly climb in almost two years on expectations of strong demand and lower production in top exporter Russia. Cold temperatures have threatened the winter wheat crops in the southern Plains and Central states. Per the FranceAgriMer’s cereal crop report, the condition of French wheat and barley crops deteriorated marginally for a second week. An estimated 85% of French soft wheat was in good or excellent condition in the week to Apr 19, down from 86% the prior week and 87% two weeks ago.

Soybean

Tightening global grain and vegetable oil supplies has been pushing soybean futures higher for capping the biggest weekly rise since May 2019. While strong demand from the livestock sector has raised Chinese soybean imports, the imports from Brazil — the world's top exporter — dropped to the lowest since January 2017 due to rain. The cool and dry weather in Midwest could hurt the soybean crops in spite of the fact that the U.S. farmers plan to sow 87.600 million acres with soybeans this year, the most since 2018.

Given this, we have highlighted four agricultural ETFs that have been performing well this year and will continue to rise should the same trends persist. While these are the best performers in the space, they lag the broader commodity market significantly. Our ranking system takes into account the asset class outlook, which is negative for agricultural commodities and hence most ETFs in this space have a Zacks ETF Rank #5 (Strong Sell) (see: all the Agricultural ETFs here).

MLCX Grains ETN (GRU - Free Report) – Up 30%

This ETN is Linked to the ICE BofAML Grains Index - Total Return, which is designed to provide investors with an index for the grains sector and for investment in commodities as an asset class. The index comprises futures contracts on four physical commodities: corn, soybeans, soybean oil and wheat. GRU has accumulated $4.3 million in its asset base and charges 75 bps in annual fees. It trades in an average daily volume of 6,000 shares.

Teucrium Corn Fund (CORN - Free Report) – Up 28.4%

This ETF provides investors an easy way to gain exposure to the price of corn futures in a brokerage account. It uses three futures contracts for corn, all of which are traded on the CBOT Futures Exchange. The three contracts include the second-to-expire contract, weighted 35%; the third-to-expire contract, weighted 30%; and the contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%. CORN has accumulated $172.9 million and trades in an average daily volume of 269,000 shares. It has 2.47% in expense ratio (read: Corn ETF Hits 52-Week High).

Teucrium Soybean Fund (SOYB - Free Report) – Up 16.6%

This product provides investors an easy way to gain exposure to the price of soybean futures in a brokerage account. It uses three futures contracts for soybeans, all of which are traded on the CBOT Futures Exchange. The three contracts include the second-to-expire contract weighted 35%, the third-to-expire contract weighted 30%, and 35% weighted contract expiring in the December following the expiration month of the third-to-expire contract. The fund has amassed $89.8 million in its asset base and trades in a good volume of about 103,000 shares a day. The product charges a fee of 2.50% per year.

Teucrium Wheat Fund (WEAT - Free Report) – Up 11.5%

This fund provides investors an easy way to gain exposure to the price of wheat futures in a brokerage account. It uses three futures contracts for wheat, all of which are traded on the CBOT Futures Exchange. The three contracts include the second-to-expire contract, weighted 35%; the third-to-expire contract, weighted 30%; and the contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%. The fund has amassed $87.3 million in its asset base and trades in a good volume of about 410,000 shares a day. It charges a fee of 3.14% per year.

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