Grain ETFs Tick Up as Exports Resume in Ukraine

August 10, 2022

Global food prices may see some much-needed relief following a bilateral agreement to resume grain shipments in Ukraine, which could have a major impact on agriculture exchange-traded funds.

The largest grain-focused ETFs have been on a wild ride this year amid a conflict between two of the biggest exporters in the world, Ukraine and Russia. Twelve ships carrying grain departed Black Sea ports this week, according to Reuters. 

The rise in exports is a result of a deal that Ukraine and Russia struck last month. The price of wheat, corn and soybeans fell to multimonth lows immediately after the announcement, though they’ve since clawed back some of their losses.  

The Russia-Ukraine deal, a rare show of cooperation between the two warring countries, is scheduled to last 120 days and can be renewed. It was brokered by the United Nations and Turkey, a member of the North Atlantic Treaty Organization, which is highly dependent on imported grain from Ukraine and Russia.  

With the deal in place, Ukraine can potentially expand grain exports from 2 million tons per month to 5 million tons per month—which was the amount it exported prior to the invasion. Ukraine also has about 20 million tons of grain sitting in storage facilities. 

The agreement also has provisions that allow Russia to export some grains and fertilizers that were held up by U.S. sanctions. The combination of all those additional supplies should help at least slow down food inflation, which was running at more than a 10% rate in the U.S. in June. 

Wild Year for Grain ETFs 

Prior to the invasion, Ukraine was the fourth largest exporter of corn and the fifth largest exporter of wheat, while Russia was the world’s largest wheat exporter, according to the USDA. 

At its highs in May, the $314 million Teucrium Wheat Fund (WEAT) was up as much as 74% on a year-to-date basis; those gains have since been cut to 11%. 

The $193 million Teucrium Corn Fund (CORN), the $65 million Teucrium Soybean Fund (SOYB) and the $1.5 billion DBA Agriculture Fund (DBA)—a broader ETF that tracks 10 different agricultural commodities—also saw their gains cut, as can be seen from the chart below: 

 

 

Still, each of the funds is still up solidly on the year, and they could conceivably rebound if the Russia-Ukraine deal falls apart or if other factors hinder Ukraine’s exports. Since these exports are taking place in a war zone, commercial shipping vessels may be reluctant to operate in disputed waters. Finding crews willing to staff the ships is also difficult. 

"Until national navies assist the Ukrainian authorities to sweep these mines and create a safe corridor, seafarers will face significant personal risk sailing through these stretches of water," Stephen Cotton, general secretary of the International Transport Workers' Federation, told Reuters. 

In addition to the grain-futures-focused ETFs mentioned above, investors can also consider funds that hold agriculture-related equities, such as the $1.6 billion VanEck Agribusiness ETF (MOO)

This fund holds stocks of companies involved in “agri-chemicals, animal health and fertilizers, seeds and traits, from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations (including grain, oil palms, sugar cane, tobacco leafs, grapevines, etc.), and trading of agricultural products,” according to the company. 
 
MOO’s top holdings currently are Zoetis Inc., Deere & Co, Nutrien, Bayer AG, Corteva Inc. and Archer-Daniels-Midland Co. The fund has lost 5% year to date, though that’s significantly better than the 13% loss for the broader S&P 500. 

 

Follow Sumit Roy on Twitter @sumitroy2  

 

 

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