Commodities are all the rage these days as hardly a day goes by without oil or one of the precious metals getting a fair amount of press. This trend has amplified the attention paid by investors to ETFs that offer exposure to commodities of all stripes.
Even with that, soaring commodities prices today have kept talk about seasonality to a minimum. It's almost as though the market has said "forget tomorrow and live in the moment." Well, astute investors know better and it often pays to play seasonal trends in commodities.
And we talk about seasonality with commodities, we're going much deeper than the thesis that oil prices rise in the summer because more folks are traveling. Here's our list of commodities ETFs that could fall or flourish in the second quarter and later this year.
1) iPath DJ-UBS Cotton TR Sub-Index ETN (NYSE: BAL):
BAL has been a freight train in the past year, surging almost 143% and like the commodity it tracks, this ETN is volatile. Last year represented a departure from typical seasonal trends as cotton prices climbed in the second half of the year. Typically, the opposite is true. BAL has been under some pressure lately and the wild intraday moves make this ETN a worthwhile trade in the coming months. The question is, and it's hard to answer at this point, will cotton keep fighting off its historical patterns or will it tumble in the second half of 2011? The USDA is forecasting a bigger cotton crop this year, but overseas demand should be robust enough to pick up that extra supply.
2) Market Vector Gold Miners ETF (NYSE: GDX):
Gold prices typically get a boost starting in June when India's wedding season starts in earnest. That may seem like an odd fundamental catalyst, but the trade works for ETFs like the SPDR Gold Shares (NYSE: GLD). Mining ETFs like GDX should be watched because if oil prices do climb in the spring and summer, that means higher input costs for the miners and gold prices will need to rise to dampen oil's impact.
3) Teucrium Corn ETF (NYSE: CORN):
Corn is harvested twice a year, first in the southern hemisphere and then in the northern hemisphere. Supplies are expected to be tight in the U.S. despite a record crop in terms of size and there have been reports of high temperatures in Argentina, South America's major corn producer. Keep an eye on how Argentina's harvest impacts CORN as that could be a tell for the rest of 2011.
4) ETFS Physical Palladium Shares (NYSE: PALL):
Spring is when the big car companies really ramp up their sales and since palladium is the key component in catalytic converters used in cars sold in China AND the U.S., the two largest and most important auto markets in the world, PALL could prove to be a seasonal play, though the fundamentals bode well for longer-term success.
5) iPath DJ-UBS Coffee TR Sub-Index ETN (NYSE: JO):
Like BAL, JO fought off seasonality to rage higher for almost all of 2010. Assuming coffee prices resume their old trend of dipping in the summer months, that dip may be the time to buy JO because coffee seasonality starts to work in favor of the bulls late in the third quarter.
Disclosure: No position