Four ETFs to Play the Current Wheat Rally

Includes: DBA, DBC, GRU, RJA
by: World Market Pulse

The United States of America was the world's most expensive wheat producer in the first half of the year. But with the recent slide in the U.S. dollar, the U.S. suppliers not only became more competitive than their European counterparts but were expected to dominate the international wheat market. Everything was going well for the U.S. wheat exporters except for the rising freight costs. Analysts now believe that the wheat bull run has run into logistical constraints that may hamper world wheat trade at a time when buyers are relying on a handful of exporters to fill the deficit left by Russia's grain ban.

Supply disruptions could also put upward pressure on wheat prices. Already at elevated levels after soaring to two-year highs in the wake of Russia's ban on grain exports. Analysts fear that any supply shocks could push wheat markets higher. Meanwhile, U.S. wheat futures at the Chicago Board Of Trade, CBOT, closed higher for the third day on dryness threatening winter wheat in the Midwest and western Plains. CBOT December wheat ended up 7 1/2c at $7.36 1/4 a bushel, KCBT December wheat jumped 9 1/2c to $7.95 3/4, and MGE December wheat rose 6 3/4c to $8.03 3/4.

U.S. to Surpass EU Wheat Exports

Traders have become downbeat about the prospects for European Union wheat in recent weeks due to a tail off in demand due to waning supplies and high prices. Exports from the bloc started at near-record levels this week as suppliers scrambled to secure demand after Russia banned grain exports for the year.

Last week Egypt, the world's biggest wheat importer, bought 110,000 MT of U.S. wheat at $279.80 PMT, compared with 120,000 MT of French wheat at $296.06 PMT. Market participants said that this move signaled the increasing dominance of the U.S. in export market.

ETF Options for Wheat Investment

Although there are no wheat-specific ETFs, some of the ETFs worth considering to play the current wheat rally include:

1. ELEMENTS Rogers Intl Commodity Agric ETN Profile (NYSEARCA:RJA): The Index represents the value of a basket of 20 agricultural commodity futures contracts and is a sub-index of the Rogers International Commodity Index. The top holdings include: wheat (20%), corn (14%), cotton (12%), and soybeans (9%).

Expense Ratio: 0.75%

2. ELEMENTS MLCX Grains Index TR ETN (NYSEARCA:GRU): The index is designed to provide a benchmark for the grains sector and for investment in commodities as an asset class. The Index comprises futures contracts on four physical commodities: Corn, soybeans, soybean oil and wheat. The Index is a total return index; thus it is designed to reflect the performance of a fully collateralized investment in the index components. The top holdings are: wheat (47%), corn (36%), soy meal (10%), and soy beans (8%).

Expense Ratio: 0.75%

Some of the other broad Agriculture related ETFs that include soft commodities having wheat futures contracts in varying amounts include:

  • PowerShares DB Agriculture (NYSEARCA:DBA): Wheat is 12.6%

  • PowerShares DB Commodity Index Tracking (NYSEARCA:DBC): Wheat is 5.6%

Disclosure: No positions