Agricultural commodities have seen smooth trading this year, enjoying a huge rally in the first four months of the year on adverse weather conditions and growing demand. This trend now seems to be reversing on accelerated crop plantation, especially in the U.S., and eased dry-weather concerns following rains.
This is especially true as wheat saw the worst slump in its prices in 15 years early this month on speculations of increased global supply. Wheat harvest in the European Union (EU) is expected to be the most since 2008. As per FAO, global wheat production would be 702.7 million metric tons in the 2014-15 season, up from 701.7 million metric tons projected in May.
Further, global wheat stockpiles are expected to grow to 188.08 million tons, the highest in three years and above the U.S. Department of Agriculture’s forecast last month (read: Wheat ETF: Leader or Laggard?).
Soybean and corn also tumbled on concerns that production would rise to an all-time high in the U.S., which is the world’s top producer. Additionally, favorable weather conditions are supporting the crop plantation given that ample rain is expected across 90% of the key U.S. corn and soybean growing areas over the next two weeks.
Moreover, corn demand for U.S. export might decline as China has curbed the purchases of a feed ingredient made from the grain. On the other hand, 87% of soybean plantation is already completed, indicating 23% higher global stockpiles for the 2014–15 season (read: Inside The Top Ranked Corn ETF).
Soft commodities like cotton, sugar, coffee and cocoa are also facing threats of the worst monthly loss due to enough supply and rising stockpiles.
Given these demand/supply imbalances, several commodity ETFs have actually delivered lackluster returns so far this month and is expected to continue this trend for the next few days. Below, we have highlighted three ETFs that lost more than mid single digits month-to-date and are lagging other products in the agricultural space.
Teucrium Agricultural Fund (TAGS)
This fund provides exposure to four core agricultural commodities - corn, wheat, soybeans and sugar - without the need for a futures account. This is easily done by investing directly in shares of the four Teucrium Funds: Teucrium Corn Fund, Teucrium Soybean Fund, Teucrium Sugar Fund and Teucrium Wheat Fund in equal weightings and reduces the effects of both contango and backwardation.
The product has amassed $2 million in its asset base and charges 55 bps in annual fees. The ETF lost 8.8% so far this month and has a Zacks ETF Rank of 3 or ‘Hold’ rating with High risk outlook (see: all Agricultural ETFs here).
iPath Pure Beta Cotton ETN (CTNN)
This ETN targets cotton segment of the broad agricultural commodity market by tracking the Barclays Cotton Pure Beta Total Return Index. Unlike many commodity indices, this index offers roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology.
The product has managed assets of $2.3 million and charges 75 bps in fees per year from investors. The ETN is down 7.8% and has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating with High risk outlook.
iPath Dow Jones-UBS Coffee Subindex Total Return ETN (JO)
This ETN follows the Dow Jones-UBS Coffee Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on coffee and currently consists of one futures contract on the commodity. Expense ratio came in at 0.75% (read: Will Coffee ETFs Continue to Brew Returns in Q2?).
The note has attracted $80.9 million in assets so far this year and lost 6.7% in the seven trading sessions this month. JO currently has a Zacks Rank of 3 with High risk outlook.
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