So far this year has been moderate for agricultural commodities as is evident from the 2.5% gains (as of March 1, 2017) in the broader soft commodity ETF PowerShares DB Agriculture ETF (DBA - Free Report) . Even a subdued greenback, which normally backs commodity investing, could not turn the tide for all commodity exchange-traded products.
While the high chances of the U.S. dollar gaining strength on possibility of faster Fed rate hikes might spoil the party for agricultural commodities, cheaper valuation and some grain-specific factors may provide support to a few agricultural ETF/ETNs (read: Yellen Gives Hawkish Signals: 5 ETF Plays).
In the light of this, we highlight three agricultural exchange-traded products that could be Buy candidates going forward (read: Best & Worst ETFs of February 2017).
While coffee prices are on an uptrend lately on higher demand, inclement weather in the major producing region – Brazil – have hampered the output. Also, increasing demand in global markets owing to a rebound in economic conditions boosted the outlook for coffee prices.
Three years of drought in Brazil has primarily resulted in the dreary situation. As per Financial Times, about 90% of Brazil’s robusta beans — the lower quality type — is consumed domestically. Lack of supplies led Brazilians to opt for their first bean import.
Investors can thus invest in exchange-traded products like iPath Bloomberg Coffee Subindex Total Return ETN (JO - Free Report) and iPath Pure Beta Coffee ETN (CAFE - Free Report) . Both the products have a Zacks Rank 2 or a ‘Buy’ rating and charge 75 bps (see all agricultural ETFs here).
As per the Department of Agriculture, U.S. corn inventories will likely be subdued before the 2018 harvest on reduced plantings and stronger demand. This would mark the first since 2013, indicating renewed strength in corn prices.
Investors should note that the commodity has been under pressure for long. With prices at the lowest point in recent years, farmers have actually cut back on production.
However, the latest spell of optimism in the corn market can be felt in the behavior of hedge funds. These remained extremely bullish on the grain lately, as per Bloomberg. Corn is heavily used in the production of ethanol. The USDA now expects the total consumption of corn in the ethanol industry to rise 0.9% to an all-time high of 5.4 billion bushels next season.
As a result, Teucrium Corn ETF (CORN - Free Report) is a Buy at present. The underlying index of the fund looks to reflect the daily changes of a weighted average of the closing prices for three futures contracts for corn that are traded on the CBOT. The total expense ratio of the fund is 2.89%.
India is one of key producers of wheat. With the act of demonetization of high denomination currency in November 2016, concerns over new harvest drove wheat prices as farmers were not being able to arrange for enough cash for the sowing season.
Moreover, warmer weather conditions in the northern hemisphere have hurt winter wheat crops. Investors should also note that Russian is a key wheat exporting country. Meanwhile, Russian rouble is up about 4.9% against the U.S. dollar so far this year (as of March 1, 2017).
In the face of a stronger rouble, the Russian Grain Union industry may not be interested in offering the entire wheat surplus for export. The Russian Grain Union industry group feels that their wheat exports will suffer “without a return in the rouble to 63-64 per $1” while the currency actually costs about 58.27 per U.S. dollar as of March 1, 2017 (read: 4 Emerging Market ETFs Poised to Be Great Buys).
So, all in all, wheat exports from Russia will likely to be muted, causing supply issues in the global market and raising prices. This in turn has opened up doors for investing in Teucrium Wheat ETF (WEAT - Free Report) . The fund has a Zacks ETF Rank #2 and a total expense ratio of 3.34%.
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