Four ETFs To Play Corn’s Shine (CORN, DBA, PAGG, MOO, MON, POT, DE)
As supply and demand imbalances continue to take their toll on corn and other agricultural products pushing prices of these commodities higher, the path to prosperity could potentially be paved for the the Teucrium Corn (NYSE:CORN), the PowerShares DB Agriculture Fund (NYSE:DBA), the PowerShares Global Agriculture (NYSE:PAGG) and the Market Vectors Agribusiness (NYSE:MOO).
Recently, the US Department of Agriculture released a report illustrating that corn yields are lower than expected resulting in downward revisions to future crop estimates, pushing prices of the sough after commodity north of $5 per barrel. In fact, the USDA projects that in 2011, supplies as a percentage of usage would be at their lowest level in 15 years. Furthermore, grains have already been hit by a supply shock earlier this year by the severe drought seen in Russia.
Ian Berry of the Wall Street Journal indicates that some causes of this lower yield include heavy rains and flooding in parts of the Mid-West earlier this year which washed away nitrogen, a key nutrient in the corn production. Additionally, unseasonably hot-night temperatures plagued the region resulting in crops to become stressed and limited kernel growth.
Corn is such an important commodity due its uses in packaged foods and its importance in livestock production. Corn is often used by farmers and ranchers to fatten up their herds of cattle and chicken to produce more meats, eggs and milk. Additionally, corn is a staple ingredient in the production of ethanol, which is a source of fuel that continues to grow in global demand.
On the demand side, global demand for corn is expected to remain elevated in the near future. For the first time in several years, China has emerged as a consistent buyer of US corn and is likely to extend out this trend. In addition to China, other developing nations are likely to demand more corn as per-capita income in these regions increase and populations continue to grow. Demand from the energy sector is also expected to increase as ethanol margins remain favorable and the push to cleaner global energy standards continues to remain on the political agenda.
As previously mentioned, some ways to play this supply and demand imbalance in corn include:
- Teucrium Corn (NYSE:CORN), which is a pure play on corn through futures contracts.
- PowerShares DB Agriculture Fund (NYSE:DBA), which is a diversified play on agriculture and allocates nearly 12.79% to corn futures contracts.
- PowerShares Global Agriculture (NYSE:PAGG), which includes companies likely to benefit from positive price support seen in corn such as Monsanto (NYSE:MON) and Wilmar International.
- Market Vectors Agribusiness (NYSE:MOO), which includes companies like Potash (NYSE:POT) and Deere (NYSE:DE) in its top holdings, both of which are likely to reap the benefits of corn’s rally.
As always, when investing in these commodity driven equities, it is important to keep in mind in risks that are involved. To help mitigate these risks, the use of an exit strategy which identifies specific price points at which downward price pressure is likely to be seen is important. Such a strategy can be found at http://www.smartstops.net/.
Written By Kevin Grewal from Smart Stops Disclosure: Long DBA
Kevin Grewal serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton.