Grain ETNs Surge as Russia Halts Wheat Exports

Includes: GRU, JJG, JJGC
by: Eric Dutram

With equity markets surging as of late, commodities have been left on the back burner, an after-thought for most investors. However, recent events in both the sugar and wheat markets look to once again put commodity ETPs at the forefront of investors’ minds. While sugar is surging due to seasonality issues, wheat has been heavily impacted by weather issues in one of the world’s most important wheat-producing regions. One of the worst drought’s in Russia’s history has devastated the nation’s wheat output, forcing the government to take drastic measures in order to protect its food security and avoid becoming a net-importer of the staple crop. Earlier today, Russian Prime Minister Vladimir Putin told government officials that a temporary ban was needed on grain exports, with a spokesman later saying that it would come into force from August 15 and would apply to contracts that had been already signed.

This development is an extremely important event for grain markets since Russia was the world’s third-largest exporter last year. Expectations for a big cut into grain supplies sent wheat futures surging higher on the day in markets around the world. September wheat futures on the Chicago Board of Trade jumped higher up by their daily limit of 60 cents; a high for the contract and a 23-month high for front-month prices. This surge helped to push benchmark wheat prices in Chicago and Paris up an astronomical amount since the start of July; they have now added 69 percent and 58 percent respectively in less than two months. “An export stop by Russia would mean the cards are reshuffled in the international wheat market,” one European trader said. “It would open up huge new opportunities for west European and U.S. sales. The implications would be huge.”

Grain ETNs In Focus

Russia’s wheat harvest is now expected to drop almost 20%; the country’s misfortune has been good news for holders of some of the most popular agricultural commodity ETFs on the market. While there are 11 ETPs in the Agricultural Commodities ETFdb Category, two focus exclusively on the grain markets; the iPath DJ-UBS Grains ETN (NYSEARCA:JJG) and the ELEMENTS MLCX Grains Index ETN (NYSEARCA:GRU), both of which soared in Wednesday trading.

Both funds offer high allocations to wheat with the crop making up nearly 25% of JJG and close to a 46% weighting in GRU. In late afternoon trading, GRU had added 3.5% on the day, while JJG had added 2.4%. This continues the solid summer that both of the funds have been having; JJG is up almost 20% over the past month while GRU has produced a gain of close to 25% in the same time period.

Disclosure: No positions at time of writing.

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