New Agriculture ETF Takes Root

by: Tom Lydon

Teucrium Trading on Wednesday launched an exchange traded fund focused on the agriculture sector. It will offer commodities exposure in one single fund of ETFs. The new fund will give investors exposure to four core agricultural commodities, sans futures contracts.

The ETF will invest in corn, soybeans, wheat and sugar.

The new Teucrium Agricultural Fund (TAGS) is a blend of four Teucrium funds already trading:

  • Teucrium Corn Fund (CORN) Tracks futures contracts on the CBOT, or Chicago Board of Trade.
  • Teucrium Soybean Fund (SOYB)Tracks futures contracts on the CBOT, or Chicago Board of Trade.
  • Teucrium Sugar Fund (CANE) Tracks futures contracts on the ICE Futures US.
  • Teucrium Wheat Fund (WEAT) Tracks futures contracts on the CBOT, or Chicago Board of Trade.

The new ETF will avoid futures contracts, which will mitigate the risk of contango and backwardation. Contango occurs when the futures price is above the expected future spot price. Backwardation occurs when the futures contract approaches expiration, the contract will trade at a higher price compared to when the contract was further away from expiration.

On average, each ETF of the underlying funds will get about 25% representation. The funds assets will be re-balanced daily to maintain the 25% allocation. TAGS will have an expense ratio of 0.32%.

"TAGS was designed as a fund of ETPs to allow investors to allocate investments in the four core agricultural commodities without having to rebalance their exposure themselves," said Sal Gilbertie, Teucrium chief investment officer. "By using the fund of ETPs structure, we are not only providing investors with a greater degree of diversification, we are providing them with the same unique investment methodology used in each of the underlying Teucrium commodity funds. Investors now have a way to invest in a next-generation agricultural basket ETP that may be a better option than currently available alternatives."

The new fund debuts as the annual USDA Prospective Plantings report will be due out on March 30, a focus for traders and investors.

"The supply and demand for corn and soybean has been at some of their highest, with the U.S. benefiting from strong exports. China has been stepping up its purchases of U.S. soybean along with corn. Weekly USDA export sales data continues to show strong numbers for corn and soybeans," Emerging Money wrote on NASDAQ.

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.