Liquid Alternatives: Why the Risk-Reward on Grain ETFs Makes Sense

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Agricultural commodities offer diversification out of a traditional portfolio and generate uncorrelated returns.

Speaking to Tom Lydon at the Inside ETFs conference, Sal Gilbertie, CEO, Teucrium, observed that agricultural commodities such as grains were an excellent diversifier. (ETF Trends)

Giving an interesting insight, Gilbertie said that grains outperformed the S&P500 in 11 out of 12 instances when the index fell by 10% or more.

Observations on grains

https://www.youtube.com/watch?time_continue=12&v=8KWSi6WlRFU

In other comments on the chat, Gilbertie said favorable weather had ensured a plentiful supply of grains in the past seven years or so. Grains have therefore been bearish in recent times.

But the probability is mounting that there a bad weather year could be round the corner. Corn, for instance, has doubled twice within the past 13 years due to instances of drought.

Grains can deliver substantial alpha, said Teucrium’s Gilbertie, “when it stops raining.”

Further, grains such as soybean and corn have been trading at the cost of production because of market volatility from trade wars, he observed.

Meanwhile, analysts believe that grains are negative year-to-date and the virus is, of course, an important factor. However, their recent price decline has more to do with supply chain disruptions rather than demand destruction.

Jim Rogers on agriculture

Commodity guru Jim Rogers observes that farmers are now much older, on average, around the world. And that fewer and fewer people are training in agriculture.

In his opinion, the situation in agricultural commodities is shaping up for “structural undersupply” accompanied by a shortage of skilled and migrant workers.

ETFs to bet on grains

Given all the above factors, the risk-reward profile for a long-term on grains appears favorable, and an ETF could a suitable vehicle for that thesis.

Teucrium offers a suite of ETFs including the following grain ETFs. Investors should note that the ETFs invest in futures contracts, not the spot market:

ETF name Ticker (NYSEARCA: ) YTD change % % (Near/Next/Far Contracts)
Teucrium Corn Fund CORN -18.78 35/30/35
Teucrium Wheat Fund WEAT -8.38 35/30/35
Teucrium Soybean Fund SOYB -13.01 35/30/35
Teucrium Sugar Fund CANE -23.01 35/30/35
Teucrium Agricultural Fund TAGS -17.79 35/30/35

 

Related Story: Venture Capital: Pivot Bio, Potential Disruptor of Synthetic Fertilizers, Collects $100M                                                  

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