By Jared Cummans
Corn is one of the oldest crops known to man. Dating back thousands of years to the ancient Mayans and Aztecs, corn is thought to be the second most cultivated crop in history behind wheat. Today, corn is a staple crop for the U.S. as we dominate the production of this yellow commodity. But what many people fail to realize is that corn is so much more than just a food. It is a commodity that makes its way into a number of products we use in our lives. In fact, for the average U.S. citizen, it would be difficult to make it an entire day without using some kind of corn-based product. Its many uses include paints, dyes, toothpaste, cosmetics, beer, whiskey, explosives, solvents, anti-freeze, soaps, and much more.
With such a heavy foothold in our economy, it’s no wonder why corn is one of the most popular commodities in the U.S. Its futures, traded on the Chicago Board of Trade, are constantly among the top five most popular contracts for the entire CME Group (on a monthly basis). But for many investors, futures are too dangerous and come attached with too many complexities to be an appropriate allocation. Enter the Corn ETF (NYSEARCA:CORN) from Teucrium, a fund that affords investors with futures exposure through an equity ticker.
Under the Hood of CORN
CORN was introduced in mid-2010 and at the time was the only fund to solely dedicate its assets to this commodity. Although it did not go on to become a major fund, it was able to gain a fair amount of traction among niche investors and cement its place into the financial universe. But to be clear, CORN is not your average futures product, as it employs a unique methodology in order to accurately reflect the agriculture market (see also "50 Ways To Invest In Agriculture").
For CORN, "we trade second and third month futures because they will move with the nearby price of corn, which is what investors want to capture. But we also trade the December following the third month. For corn crops, that is very important because it represents the crop year. December represents the month that has the highest open interest and highest trading volume, affording very good liquidity," says Sal Gilbertie, president of Teucrium. Investors should note that this one-of-a-kind strategy comes at a price of 142 basis points.
Below are the quick stats (as of July 2012) to help investors get a better feel for this unique ETF:
- Issuer: Teucrium
- Expense Ratio: 1.42%
- Inception: June 8, 2010
- Total Assets: $88 million
- Average Daily Volume: 194,000
Who Should Use CORN
Just because this fund is publicly available to anyone with a trading account does not mean that it is intended for everyone. Instead, CORN will probably only be appropriate for niche investors who already have a firm understanding of the agricultural world; those who come in unprepared can get burned in a hurry. Commodity investments are very trend-dependent, and anything from heavy rains to hot weather can drastically change the outlook for your position. Luckily, because so much of the world’s corn is produced right here in the U.S., your focus on news and weather patterns will rarely have to stray beyond U.S. borders (see also "Why Corn Has Surged 39%").
As with any commodity investment, you must have the discipline and ability to constantly monitor your allocation. At the end of the day, CORN still offers futures-based exposure, meaning that it will require someone who falls more on the active investing side. For those of you who meet the aforementioned requirements, CORN will be a great way to take advantage of the market and its unique strategy will allow you to play the commodity in a way that would be relatively expensive and difficult to implement on your own.
Disclaimer: Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.