McCall’s Call: Food ETFs For Thought

August 11, 2010


Focused Funds

With wheat in the headlines recently, investors have been searching for a pure-play ETF. Unfortunately no such thing yet exists.

But there is the iPath Dow-Jones UBS Grains ETN (NYSEArca: JJG). It has a third of its allocation in wheat, with the rest in soybeans and corn. The ETN has outperformed the broader agriculture ETPs but, at the same time, has experienced much higher volatility due to the high concentration in only three commodities.

Finally, there are single-commodity ETPs that track everything from sugar to coffee.

The newest addition is the Teucrium Corn Fund (NYSEArca: CORN) that gives investors exposure to the daily movement of a basket of corn futures. The volatility will be even higher for the single-commodity ETPs, and investors should be cautious when considering such products.

The Future Of Food

Because food is a necessity, there will always be a demand for agricultural commodities.

As I said, weather, land issues, increasing middle classes around the world and the fact there will be more mouths to feed in the future bodes well for the price of agricultural commodities.

Even if there is a double-dip recession, the need for food will remain and a lack of supply for many of the commodities could help the sector sidestep the overall market weakness in that scenario. That said, I don’t believe a double-dip recession is likely, so focus on a growing global economy as one more reason to invest in agriculture ETPs.


Matthew D. McCall is editor of The ETF Bulletin and president of Penn Financial Group LLC, a Ridgewood, N.J.-based wealth management firm specializing in investment strategies using ETFs.

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