Supply Glut, Low Demand Continue to Weigh on Commodity ETFs

January 13th at 3:22pm by Tom Lydon

Broad commodity exchange traded funds have experienced a dismal year as slowing economic growth in emerging economies and supply glut in agricultural products pushed down prices, with hedge funds reducing bullish bets by the most in seven weeks.

The PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) has declined 10.3% over the past year. [Commodity ETP Assets Decline Most on Record in 2013]

Net-long positions across 18 commodities dipped 11% to 678,885 futures and options for the week ended Jan. 7, with investors the most bearish on wheat ever and anticipating falling prices for corn, coffee, sugar and soybean oil, reports Debarati Roy for Bloomberg.

Over the past year, the Teucrium Wheat Fund (NYSEArca: WEAT) dropped 30.6%, Teucrium Corn Fund (NYSEArca: CORN) fell 28.7%, iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) declined 29.2%, iPath Dow Jones-AIG Sugar Total Return Sub-Index ETN (NYSEArca: SGG) is down 23.1% and Teucrium Soybean Fund (NYSEArca: SOYB) dipped 5%. [Corn ETF Wilts As Stockpiles Close in on 20-Year High]

Meanwhile, bullish wagers on gold increased to their highest level since mid-November.

The SPDR Gold Shares (NYSEArca: GLD) fell 25.8% over the last year, but the fund is up 0.8% over the past week.

Raw-material prices dipped 3% since the end of 2013, the worst start to a year since 2007, after the China Producer Price index fell in December for the 22nd straight month, the longest streak since the Asian financial crisis.

On the supply side, the U.S. Department of Agriculture expects stockpiles of wheat and soybeans will grow. Barclays projects copper and nickel will be in a surplus this year as well.

“There is a whole lot of inventory out there for many commodities,” John Stephenson, a manager at First Asset Investment Management Inc., said. “This will be a year of low prices, and I will stay away from agriculture and precious metals.”

While ETF investors can not track the price movement of copper directly, investors can try taking a look at he iPath Dow Jones-UBS Copper Total Return Sub-Index ETN (NYSEArca: JJC), which tracks copper futures. JJC fell 12.7% over the past year. The iPath DJ-UBS Nickel TR Sub-Idx ETN (NYSEArca: JJN) tracks nickel futures contracts and is down 24.9% over the past year

“Supplies of many commodities are rising, while demand, especially in China, remains weak,” Paul Christopher, chief international strategist at Wells Fargo Advisors LLC, said in the article. “We remain underweight on commodities.”

For more information on commodities, visit our commodity ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.