Can Grain ETFs Sustain The Recent Rally?

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Includes: BAL, CORN, JJG, JJS, SGG, SOYB, WEAT
by: Zacks Funds

Taking the market by surprise, grain prices and the related investments popped lately. This is perhaps the sole good news in the investing world to start 2016 as the broader market has seen choppy trading so far. And as far as commodities are concerned, nobody knows when and where their prolonged rout will end.
Lower estimates for U.S. crops showered these unexpected gains on grains. Lately, USDA reduced its numbers for the 2015 corn and soybean harvests and sharply cut winter wheat planted acreage to 36.61 million acres, which was "the smallest winter crop in six years." The figure exceeded analysts' expectation of a decline of 141,000 acres.

Per USDA, corn harvest is presently at 13.6 billion bushels, lower than USDA's December reading of 13.654 billion. The soybean produce was recorded at 3.93 billion while USDA's latest reading was similar to the 2014 levels. While many agricultural commodities advanced, wheat prices soared the most in two months.

As a result, the Teucrium Wheat ETF (NYSEARCA:WEAT), the iPath DJ-UBS Grains Total Return Sub-Index ETN (NYSEARCA:JJG), the Teucrium Soybean Fund (NYSEARCA:SOYB) and the Teucrium Corn ETF (NYSEARCA:CORN) added about 2.1%, 1.8%, 1.4% and 1%, respectively, on January 12 (read: Invest in America with These 4 ETFs).

Can the Positive Momentum Sustain?

Per Bloomberg, while U.S. output may moderate, global supplies of wheat remain ample thanks to solid output in Russia, Pakistan and the European Union. On the other hand, the demand scenario is as sluggish as it has been in recent times.

Global growth worries mainly in most of the developed economies and in some emerging economies too resulted in softer demand for food. USDA also pointed to this issue with "a small reduction in domestic usage and a cut to exports." USDA lowered the export numbers for corn and soybean to 1.7 billion bushels from its previous 1.75 billion and to 1.69 billion from 1.715 billion, respectively.

Still, there are a few agro-based products which could deliver decent gains to investors despite the broad-based gloom. Below we highlight those products in detail (read: 3 Commodity ETFs Defying Weakness in 2015).

iPath Dow Jones-UBS Sugar Total Return Sub-Index ETN (NYSEARCA:SGG)

The sugar prices are expected to remain steady though most of the other commodities are finding the going tough. This is because; supply glut is an easing issue in the global market due to adverse weather.

SGG tracks the Dow Jones-UBS Sugar Subindex Total Return Index, which provides returns that are in an investment in the futures contracts on the commodity of sugar. The note has garnered nearly $53.2 million in assets. It charges 75 bps in annual fees. The note was up 1.1% in the last five days (as of January 13, 2016).

iPath Dow Jones-UBS Cotton Total Return Sub-Index ETN (BAL

Notably, cotton price is also showing hopes on higher purchase from the spinners and exporters. Also, in India, a key grower of cotton, the central government's move to intervene in the pricing of cotton might help in shoring up the commodity. The product has amassed about $17 million in assets and charges 75 bps in fees. BAL gained 1% in the last five days (as of January 13, 2015).

iPath Dow Jones-UBS Softs Total Return Sub-Index ETN (NYSEARCA:JJS)

The note looks to provide the returns that are available through an investment in the futures contracts on the softs sector of the commodity world. Components currently include sugar, coffee, and cotton. This $2.6-million ETF charges 75 bps in fees. Though the product lost 2% in the last five days, it added about 1.5% on January 13.

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