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Agriculture ETFs in Spotlight as US-Japan Sign a Trade Deal

Sweta Jaiswal, FRM

President Trump’s trade deal with Japan has been a comforting development for investors. In fact, the deal between the world’s biggest and third-largest economies is considered a "tremendous" one by Trump. The deal is expected to open Japan’s markets to around $7 billion worth of U.S. products annually. In this regard, Trump has commented, “this is a huge victory for America's farmers, ranchers, and growers. That's very important to me” (read: Dividend Growth ETFs to Grab Amid Rising Geopolitical Risks).

US Farm Products Major Gainers

According to the Office of the United States Trade Representative (USTR), following the trade pact, more than 90% of the U.S. food and agricultural products entering Japanese markets will either be duty-free or will get preferential tariff access. Per a Politico article, Japan will lower tariff on beef and pork. Meanwhile, wheat and wheat products from the United States will be exposed to some Japan-specific import quota. However, with immediate effect, tariffs will be removed from almonds, walnuts, blueberries, cranberries, sweet corn, grain sorghum, broccoli and other U.S. farm products (read: Japan ETFs Rally on BoJ's Hints of Easing in October).

Meanwhile, products like U.S. cheese, processed pork, poultry, beef offal, ethanol, wine, frozen potatoes, oranges, fresh cherries, egg products and tomato paste will remain exposed to tariffs that will reduce over the years. However, though tariffs will be lowered, they will not be eliminated for fresh and frozen beef and pork.

Why is the Deal Important?

Trump has been trying to revive the agricultural sector, which has been massively hit by his America first propaganda. It is worth noting that the U.S. farm lobby holds major influence in Washington and with the 2020 Presidential Elections in sight, Trump had been trying all means to come to a consensual decision with his Japanese counterpart.

Japan is a massive market for U.S. agricultural exporters. In 2018, the United States exported around $13 billion  worth of agricultural products to Japan, which stood out to be the third-largest agricultural export market. U.S. farmers have been facing a number of hurdles and competitive pressure since Trump opted out of the Trans-Pacific Partnership.

U.S. exporters are not only unable to access additional market opportunities in Japan, Malaysia, Vietnam and other countries that moved forward with the Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP, but they are also facing adverse tariff action in comparison to other countries like Australia, Canada and New Zealand. For instance, U.S. beef exporters faced a tariff of 38.5% in Japan in comparison to 26.6% seen by their Australia, Canada and New Zealand counterparts, as of April 2019. The tariffs on beef for CPTPP members will come down to 9% over a 16-year period (read: A Look at Consumer ETFs as Confidence Slips).

Agriculture ETFs to Shine

The trade deal with Japan has been widely applauded by the U.S. agricultural sector. In this regard, American Farm Bureau Federation’s President Zippy Duval commented, “the announcement that the two countries have reached an agreement and have completed agricultural negotiations is a positive step for America’s farmers and ranchers.”

Against this encouraging backdrop, our focus has turned to ETFs like the Invesco DB Agriculture Fund DBA, Teucrium Wheat Fund WEAT, ELEMENTS Linked to the Rogers International Commodity Index - Agriculture Total Return RJA, iPath Series B Bloomberg Grains Subindex Total Return ETN JJG and iPath Series B Bloomberg Livestock Subindex Total Return ETN COW (see: all the Agricultural ETFs here).

DBA

The Invesco DB Agriculture Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Diversified Agriculture Index Excess Return plus the interest income from the Fund's holdings of primarily US Treasury securities and money market income less the Fund's expenses. The fund has an AUM of $386.1 million and charges 0.89% in fees.

WEAT

The fund provides investors unleveraged direct exposure to wheat without the need for a futures account. The fund has an AUM of $49.9 million and charges 1.16% in fees (read: ETFs in Focus as Deputy-Level U.S.-China Trade Talks Begin).

RJA

The ELEMENTS Linked to the Rogers International Commodity Index - Agriculture Total Return, due on Oct 24, 2022 is senior, unsecured debt securities, medium-term notes, Series E, issued by Swedish Export Credit Corp. It is linked to the performance of the Rogers International Commodity Index Agriculture Total Return. It has an AUM of $72.5 million and charges 0.75% in fees.

JJG

The fund tracks the Bloomberg Grains Subindex Total Return index. It has an AUM of $20.7 million and charges 0.45% in fees.

COW

The fund tracks the Bloomberg Livestock Subindex Total Return. It has an AUM of $8.2 million and charges 0.45% in fees (read: ETFs & Stocks in Focus as China Plans to Import Pork).

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Teucrium Wheat Fund (WEAT): ETF Research Reports
 
Invesco DB Agriculture Fund (DBA): ETF Research Reports
 
iPath Series B Bloomberg Grains Subindex Total Return ETN (JJG): ETF Research Reports
 
iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW): ETF Research Reports
 
ELEMENTS Linked to the Rogers Int'l Commodity Indx - Agri TR (RJA): ETF Research Reports
 
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