Picking The Right ETF For A Soybean Rally

IndexUniverse.com

Soybeans are generally not the most exciting topic of conversation. Vegetarians tend to get excited about them; meat eaters tend to wince.

They do, however, get more interesting when they can make you money.

Soybean futures rose 1 percent Monday, according to the Wall Street Journal, as fears mounted that Argentina, the world’s third-largest soybean producer, may not produce as many soybeans as had previously been expected.

Production estimates on the first- and second-largest soybean producers—America and Brazil—have already been cut following droughts. Argentina, unfortunately, has been suffering from the opposite problem:Too much rain has delayed planting.

Soybeans have been volatile lately. The January futures contract, for the most part, dropped steadily in the first two weeks of November (peaking at -9 percent) before rising by about 4.5 percent in the last half of the month.

One-Month Soybeans Futures Performance

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1 mo. soybean futures performance

If you believe that soybean prices are going to continue moving up, there are three ETFs that offer exposure to the space.

The best choice for pure soybean exposure is the Teucrium Soybean Fund (SOYB). It offers 100 percent exposure to soybeans using three different futures contracts—currently the March, May and November 2013 contracts.

Unfortunately, it’s expensive—SOYB costs 2.08 percent, making it one of the most expensive commodity ETFs on the market.

 

 

The other two options, the iPath Pure Beta Grains ETN (WEET) and the iPath Pure Beta Agriculture ETN (DIRT), have large positions in soybeans—38 percent and 32 percent, respectively—but hold other commodities as well. They cost just 0.85 percent, but are so thinly traded that they may prove to be just as expensive when all-in costs are taken into account.

WEET and DIRT have median daily volumes of zero, which means that, on most days, not a single share changes hands. Unsurprisingly, both also tend to trade at wide spreads:WEET’s average spread is over 1.25 percent and DIRT’s is 0.49 percent.

In comparison, SOYB has a median daily volume of about $300,000—also not ideal, but much better than zero—and an average spread of just 0.10 percent.

Of course, in the world of ETFs, exchange-based liquidity doesn’t tell the whole story:Larger traders who are interested in any of the three funds should contact a liquidity provider to create new shares rather than wade into a shallow liquidity pool.

While it’s a little hard to read the chart below thanks to WEET’s and DIRT’s poor trading volume, it’s easy to see that—as would be expected—SOYB does the best job of delivering the returns of soybeans. WEET and DIRT have only participated in the recent rally to a limited extent.

Two-Week Soybeans ETF Performance vs. Soybeans

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2-week soybeans ETF performance vs soybeans

If you’re trying to make a bet on soybeans without the hassle of opening and managing a futures account, SOYB is it.


At the time this article was written, the author held no positions in the securities mentioned. Contact Carolyn Hill at chill@indexuniverse.com.

 

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