Quick. Guess two of the top-performing non-leveraged exchange traded products over the past month. Biotechnology or regional bank ETFs would make for logical guesses, but also incorrect guesses. In somewhat quiet fashion, agriculture commodities ETFs have been soaring.
Over the past month, the iPath Dow Jones-UBS Grains Subindex Total Return ETN (NYSEArca: JJG) and the Teucrium Corn Fund (NYSEArca: CORN) are two of the top non-leveraged ETFs with gains of 11.3% and 8.1%, respectively, according to ETF Screen data.
June rallies for grain prices and the corresponding exchange traded funds have prompted some banks to say the party is about to end. Societe Generale SA and Goldman Sachs predict abundant supplies through the rest of this year will weigh on agriculture commodities prices, report Megan Durisin and Yunita Ong for Bloomberg.
Still, data indicate winter wheat progress is slack as is soybean planting.
“Corn, wheat and soybean prices rallied to the highest levels in the past month as many Midwest production areas have received six-times the normal amount of rainfall. Soybean planting progress is at the slowest pace since 1996 and winter wheat harvest progress is the slowest in nearly two decades. Forecasts continue to call for above normal rainfall for many key production areas. Winter wheat quality degradation is a growing concern for flour mills who seek very specific wheat quality for milling purposes,” according to a recent note from Teucrium. http://teucrium.com/
Teucrium is CORN’s issuer as well as the issuer of the Teucrium Soybean Fund (NYSEArca: SOYB) and the Teucrium Wheat Fund (NYSEArca: WEAT). SOYB and WEAT are also two of the best ETFs over the past months with gains of 6.3% and 12.7%, respectively.
The wet conditions have also slowed harvest of U.S. winter wheat, which has fueled concerns that moisture could have damaged the quality of grains. Moreover, the heavy rains have impeded barges going along the Illinois river, the official delivery point for corn and soybean futures. The CME Group has already enacted measures to allow traders to delay deliveries until the river abates. [Grain ETFs Surge]
Chris Kimble of Kimble Charting Solutions also pointed to a potentially bullish breakout of a wedge formation in WEAT’s chart. The wedge formation depicts a price pattern where the trend lines drawn above and below a price chart converge into an arrow shape. Once the security breaks out of the wedge, technical analysts believe it foreshadows a return to a major trend, or at least a short- to intermediate-term trend reversal.
Meanwhile, the global wheat market is also being pressured by crop concerns in Europe and Canada where dry and hot weather conditions are desiccating crops. The European grains traders’ association Coceral anticipates that EU soft wheat crop will come in at 140.6 million tons, compared to 148.3 million in 2014. Additionally, the El Niño weather pattern is also expected to cut Australian wheat crops in 2015/16 season to an eight-year low. [Wheat ETF Gets Some Weather Help]
Even with some encouraging catalysts, professional traders are betting on declines for agriculture commodities.
“Money managers have held a combined net-short position across 11 farm products for 15 straight weeks, U.S. government data show,” according to Bloomberg.
Teucrium Wheat Fund