Corn ETF Investing in Food Feed Ethanol

Corn is the most widely grown grain crop in the Americas and is the largest component of global coarse grain trade accounting for more than 60% of volumes over the past decade. The United States is the world’s largest corn producer with more than 330 million metric tons produced annually which accounts for more than 40% of the world’s harvest. Worldwide corn annual production is exceeds 800 million metrics tons which is more than Wheat and Rice. Corn constitutes a staple food in many regions of the world, is a major component of livestock feed and has increasing industrial use particularly for ethanol production.

In the US, corn is the most widely produced feed grain accounting for more than 90% of total value and production of feed grains. The heartland region is mainly where 80 million acres of land are planted with corn annually.  The US currently exports 20% of its annual production to other countries. As a major player in the world corn trade market,  investors and traders keep a close eye on US corn crops.

Corn ETF Price Fundamentals

Corn usage for food is expected to expand at the rate of population growth with the bulk of growing demand coming from emerging markets as it is a staple food in many countries. Furthermore, the increasing consumer demand for meat products will continue to support expanding feed grain exports in the long term. However, one should not expect prices to keep on rising smoothly as there are several factors that will trigger volatility in corn prices which is where the opportunity lies for profit, here’s what to watch for:

Ethanol Demand: What makes corn special amongst agriculture commodities is the significant portion of demand for industrial uses. Corn is the primary ingredient in ethanol which is a biofuel mixed with gasoline to decrease the amount of pollutants produced by fuel motor vehicles. Ethanol’s market share of the U.S. gasoline supply by volume has grown to almost 10% in 2010 from 3% in 2006. Keep an eye on the price of crude oil as high gasoline prices play a major role in sustaining high demand for ethanol. Refiners can almost double their profit margins by blending 10% ethanol because it is roughly 90 cents a gallon cheaper than gasoline.

The Weather: Typical of any agriculture commodity that is planted, Mother Nature has the last word. Prices for corn will depend on growing conditions in the regions of the world’s top producers: the US, China and Brazil. In the heartland of the US, Iowa, Illinois, Nebraska and Minnesota account for more than 50% of the country’s output. Corn prices are particularly sensitive to any disruptions during planting, pollination, growth and harvest.

Corn planting in the United States typically begins in late March and is completed by mid to late May. Prices can be volatile during the planting period as too much rain could result in a lower quality crop or lower yields. On the other hand, too little rain could prevent seeds from germinating properly, which can result in lower production levels.

During corn pollination which typically runs from late June to early July, watch for the temperature and precipitations levels. High temperatures and a lack of rain can result in poor pollination while excessive rain and low temperatures could result in production losses. During maturity, corn crops might suffer at the hand of diseases, moisture or excessive heat resulting in harvest losses or crops of lower quality.

The corn market is at its lowest shortly before and during the harvest season in October and November.  This is a period where futures prices have tended to decrease due to the vast majority of corn supply for the year hitting the market in a 10- to 12-week period. Since most of the world’s corn is grown in the Northern Hemisphere, the greatest number of cyclical lows is set in the corn markets in either October or December. Over the last 22 or 23 years they have always coincided with the autumn harvest.

Finally, world corn prices obey the supply and demand relationship in the US market. Even Argentina who is the second largest corn exporter only plants its corn after the size of the US crop is known. The USDA publishes a monthly crop report which can help you track supply and demand estimates for corn in the US and the world.

Corn ETF List

The Teucrium Corn Fund (NYSE: CORN)
CORN 48.38 [+0.10]
Average Volume: 242564
Yield: N/A

MER: 1.49%
CORN ETF is the only fund that provides investors with 100% unleveraged direct exposure to corn without the need for a futures account.  The Teucrium Corn Fund was also designed to reduce the effects of backwardation and contango. The fund aims to reflect the daily changes in % terms of a weighted average of the closing settlement prices for 3 futures contracts for corn that are traded on the Chicago Board of Trade:  (1) the second-to-expire CBOT Corn Futures Contract, weighted 35%, (2) the third-to-expire CBOT Corn Futures Contract, weighted 30%, and (3) the CBOT Corn Futures Contract expiring in the December following the expiration month of the third- to-expire contract, weighted 35%, less the Fund’s expenses. The fund began trading in June of 2010.

The Teucrium Agricultural Fund  (NYSE: TAGS)
TAGS 53.154 [0.00]
Average Volume: 548
Yield: N/A

MER: 1.60%
TAGS ETF is 25% weighted to Corn as it provides investors with exposure to 4 equally weighted core agricultural commodities: corn, wheat, soybeans and sugar without the need for a futures account. TAGS is essentially an ETF composed of 4 Teucrium Funds as it invests directly in shares of the following 4 ETFs: CORN, CANE, SOYB and WEAT. The Underlying Funds were designed to reduce the effects of backwardation and contango. The Fund’s assets are rebalanced, generally on a daily basis, to maintain the approximate 25% allocation to each Underlying Fund. The fund began trading on March 28, 2012.

iPath DJ AIG Grains Total Return Sub-Index ETN ( NYSE: JJG)
JJG 60.32 [+0.50]
Average Volume: 110830
Yield: N/A

MER: 0.75%
JJG is 33% corn weighted ETN that provides unleveraged investment in the futures contracts on physical commodities comprising The Dow Jones-UBS Agriculture Subindex Total Return. The Index is currently composed of 3 futures contracts on grains traded on US exchanges with the following weighting as of March 31, 2012: Corn (33%), Wheat (26%) and Soybeans (41%). JJG has been trading since October of 2007.

ELEMENTS MLCX Grains Index-Total Return ETN (NYSE:GRU)
GRU 8.07 [+0.075]
Average Volume: 73688
Yield: N/A

MER: 0.75%
GRU is a 26.5% corn weighted ETN that seeks to replicate, net of expenses, the MLCX Grains Total Return Index. The Index is comprised of futures contracts on four physical commodities trading on the Chicago Board of Trade with the following targeted weightings: wheat (45.5%), corn (26.5%), soybeans (19%) and soybean oil (9%). The index is rebalanced monthly during each roll period towards the targeted weightings as calculated on the day before the start of the roll.  GRU began trading in February of 2008.

CORN ETF is unique as it is the only fund that provides you with exposure to corn as a single agriculture commodity. If you have an opinion to express on corn with your money and don’t have a futures account, CORN is the ETF to use. If on the other hand you are looking for a more diversified exposure to the soft commodity sector, there are several agriculture ETF funds to choose from.