What’s Behind The Recent Plunge In The Teucrium Corn Fund?

Alternatives in Ethanol Production

Historically, corn has been used as a key ingredient in ethanol production. However, the emergence of wood waste and other vegetative matter as an alternative source of ethanol production might dent the demand for this corp.

ETF Impact

Given the demand/supply imbalances in corn, the related ETF is expected to hurtle downward at least in the near term.

CORN in Focus

The fund provides investors a direct exposure to corn. The product is expensive as it charges 199 bps in fees per year which is quite higher than the average expense ratio prevailing in agricultural commodities ETFs.

It trades in moderate volumes of nearly 70,000 shares on average daily basis that increases the trading cost in the form of a somewhat wide bid/ask spread.

The fund has so far attracted $47.8 million in assets this year. It lost more than 19.0% of its value so far in 2013.

As such, CORN currently carries a Zacks ETF Rank of 5 or ‘Strong Sell’, indicating that the fund might face significant bearishness in the months ahead.

Presently, the fund is hovering just over its 52-week low price of $34.05 per share, currently trading in the Mid-30’s per share. We believe there is little room for upside for the product covered, based on current supply-demand dynamics.

Bottom Line

In such a bearish scenario, investors may want to assume that a further sell-off is likely. In fact, most of the agriculture-based funds are expected to slump in the coming days on weather forecasts.

While the returns are not great, sugar and soybeans are better-positioned in the agricultural commodities space, having returned positively in the past one month. Otherwise, metal markets exhibiting an uptrend in recent weeks would be a better pick, as of now, for a commodity market play (read: 3 Metal ETFs to Buy on the Commodity Upswing).

This article is brought to you courtesy of Eric Dutram.

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