Agricultural commodities have largely trended lower as evidenced by the S&P GSCI Agriculture Index, which is down almost 20% the past year. Despite this, long-term expectations for producers remain on the positive side, potentially signaling to prospective ag commodities investors that the current weakness will be temporary.
The month of January saw farmer sentiment decline, according to the Purdue University-CME Group Ag Economy Barometer Index, which fell eight points from the previous month. That’s in line with prices trending lower, which is affecting short-term sentiment. The long-term horizon, however, remains positive as producers hope the trend will eventually reverse.
“While the Short-Term Farmland Value Expectations Index declined to 115, indicating reduced optimism on the part of producers, the long-term index held steady at 150, suggesting enduring optimism,” reported World Grain.
Of course, lower commodity prices could also negatively affect farming revenue. In turn, that hampers the ability of farmers to invest back into their businesses and this time around, high interest rates didn’t receive the majority of the blame.
“The Farm Capital Investment Index fell to 35, 8 points lower than in December,” the World Grain report added. “This month, a shift occurred as fewer producers attributed their hesitation to make large investments to rising interest rates, which reversed a trend observed through much of 2023. Instead, more farmers cited high machinery and construction prices as reasons to defer investments.”
Buying the Dip in Ag Commodities
While ag commodity prices remain depressed, it does present an opportune time for long-term investors to buy the dip. If so, they may want broad exposure via the Teucrium Agricultural Fund (TAGS). It is essentially a fund of funds that features a low 0.13% expense ratio, which is beneficial in a time like now, when investors are more cost-conscious.
Additionally, TAGS offers a perfect complement to a traditional 60/40 stock/bond portfolio with uncorrelated assets exposure, all in the convenience of one dynamic ETF. The fund combines exposure to Teucrium exchange traded funds focused on corn, wheat, soybeans, and sugar. Traders or long-term investors can focus on the fund for broad-based exposure or the individual funds for a more focused, concentrated approach in specific commodities.
Short-term traders can also use TAGS to play ag commodities prices, but they risk tying up trading capital until prices trend higher again. As such, traders may not have the proclivity to play the waiting game in the current market environment.
For the long-term investor, however, patience will continue to be key. If broad commodities continue to trend lower, investors can subsequently buy the dips and add to their ag commodities portfolio. Additionally, the diversification benefits will still be present.
“Agricultural commodities have a historically low correlation with U.S. equities making TAGS a potentially attractive option for portfolio diversification,” noted Teucrim on the TAGS product website.
The funds featured in TAGS:
- Teucrium Corn Fund (CORN)
- Teucrium Wheat Fund (WEAT)
- Teucrium Soybean Fund (SOYB)
- Teucrium Sugar Fund (CANE)
For more news, information, and analysis, visit the Commodities Channel.