So far, the year 2016 has been moderate for agricultural commodities with some specific grains like sugar, soybean and coffee seeing a spike in prices while most other still reeling under pressure as evident by the 1.5% year-to-date decline (as of November 25, 2016) in the broader soft commodity ETF PowerShares DB Agriculture ETF (DBA - Free Report) . Even a subdued greenback could not turn the tide for all soft commodity exchange-traded products.
While the likelihood of a stronger U.S. dollar in the wake of a Fed rate hike bet can spoil the party for agricultural commodities going forward, cheaper valuation and some grain-specific factors may provide support to a few agricultural ETF/ETN investing. As per analysts, the current bear markets for commodities like wheat and corn may worsen, but “previous bears have rarely lasted this long or fallen this hard.”
As per an article published on Financial Times, some analysts believe that index funds, or those that track commodities indices, will likely be long on agricultural commodities in the second half of 2017 to hedge against inflation. And this is especially true given the rising inflation expectations in the U.S. after Trump’s win. Investors should also note that volatility in grain markets have been at subdued levels for quite some time now.
In this light, below we highlight five agricultural exchange-traded products that were lately upgraded to Zacks Rank #1 (Strong Buy) or #2 (Buy) as per the Zacks methodology.
Teucrium Corn ETF (CORN - Free Report) – #5 (Strong Sell) to #1
Though this year corn prices have seen dire trading, with CORN losing over 9% in the year-to-date frame (as of November 23, 2016), prices may jump soon. As per barrons.com, supply is approaching the peak with demand still growing.
With prices at nadir, it is less likely that farmers will beef up production. Global production was 1.03 billion metric tons in the present growing season, up from 716 million tons a decade ago, going by the data offered by the U.S. Department of Agriculture.
Rising yield per acre is now at full capacity. On the other hand, demand from countries like India and China are rising as corn is used as an animal feed which is in high demand due to the shift in emerging market consumers’ preference toward meat-based diets.
Teucrium Wheat ETF (WEAT - Free Report) – #3 (Hold) to #1
India is one of key producers of wheat. With the recent demonetization of high denomination currency, concerns over new harvest pushed up wheat prices lately as farmers are not being able to arrange enough cash for the sowing season. Some traders expect wheat prices to shoot up 25% in the near term (read: Can Grain ETFs Sustain the Recent Rally?).
Teucrium Agricultural ETF (TAGS - Free Report) –#4 to #2
The fund gives investors exposure to corn, wheat, soybeans, and sugar. Investors should note that sugar prices rose lately due to global supply crunch that emanated from inclement weather in India and Brazil. Soybean prices were also on a tear lately on increased demand for Chinese animal feed. All these make TAGS a great buy right now.
iPath Bloomberg Grains Subindex Total Return ETN (JJG - Free Report) – #5 (strong Sell) to #2
The underlying index is heavy on corn (43.31%), soybeans (38.85%) and wheat (17.84%). With all these grains being well-positioned for a rally, the ETN was upgraded to a Buy rating.
ELEMENTS MLCX Grains Index TR ETN (GRU - Free Report) – #4 to #2
The ETN is linked to the MLCX Grains Index - Total Return, due February 14, 2023. The underlying index gives exposure to futures contracts on four physical commodities: corn, soybeans, soybean oil and wheat.
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