While the U.S. may not be the manufacturing powerhouse that it
once was, the country is still a massive producer of a number of
commodities. These products make up a good chunk of U.S. exports
and, thanks to changing demand pictures in both the energy and
agricultural markets, have been important contributors to the trade
balance for quite some time now.
In particular, the U.S. has developed a great advantage over
many nations in a few commodities; corn, natural gas, and soybeans.
In the case of the agricultural products, both have become
impressive sources of export dollars while natural gas production
threatens to disrupt the energy market by either eventually
becoming a major export to power hungry markets, or by hopefully
reducing crude oil imports at some point in the near future (read
The 5 Best ETFs over the Past Five Years
).
Clearly, these three products are increasingly important to the
American economy and look to maintain their significance over the
next several years at least. As a result of this, investors looking
to tap into some of the more important goods for the American
economy could consider taking a look at any of the following three
commodity ETFs:
Corn
Thanks to growing use of biofuels and rising demand for animal
feed for meat consumption, corn demand has been through the roof.
World consumption increased
by over 50%
over roughly the last 15 years, led by huge gains in usage by China
for livestock and America for ethanol.
Currently, America is still the king of corn, accounting for
over one-third of the total
world supply of the crop. Furthermore, the U.S. exports more
in corn each year than the next three biggest exporters combined.
Thanks to these factors, corn represents one of the best ways to
play an American agricultural boom both via surging emerging market
exports and increased usage on the home front as well.
For investors seeking to play this via ETFs, the
Teucrium Corn ETF (
CORN
)
is one of the only ways to target the potentially positive trend in
this agricultural commodity. CORN currently has about $60 million
in assets and has expenses of about 1.49% (read
Top Commodity ETFs In This Uncertain Market
).
While this may seem somewhat high, investors should note that
the product doesn't just roll into a new contract every month and
instead uses a more dynamic process in order to hopefully mitigate
contango. This includes holding the second-to-expire,
third-to-expire, and the next December contract that expires
(following the third-to-expire contract).
This approach, and more importantly, the sweltering heat across
much of the Midwest, has helped the fund perform quite well in
recent weeks. In fact, the product is now up 22% in the past month,
although it is more or less flat from a year-to-date look.
Natural Gas
Although the U.S. is just the second biggest producer of natural
gas-trailing Russia by just a bit-the product is generally a local
commodity that doesn't really stretch across international borders.
This is generally due to the lack of cross-ocean pipelines and the
relative difficulty that comes from transporting a gas quickly and
efficiently across vast distances.
Due to this, pretty much all the natural gas that is produced in
the U.S. stays in America, making the products that are focused on
U.S. natural gas futures a great way to 'buy American'.
Furthermore, even if new technologies open up the market to
transportation or exports, America could benefit from lower oil
imports or higher exports to natural gas starved markets in the
Asia-Pacific region or even Europe (read
Have The Natural Gas ETFs Finally Bottomed Out?
).
For these investors, a look at products which hone in on futures
of natural gas that is delivered to the Henry Hub, Louisiana could
be the way to play the vital commodity with an American focus.
Currently, there are a number of options targeting the natural gas
market in ETF form, although none are as popular as the
United States Natural Gas Fund (
UNG
)
.
This ETF tracks Henry Hub Natural Gas Price Index, holding front
month futures for the important commodity. Fees come in at 98 basis
points a year while average daily volume is quite robust at 9.9
million shares a day (see
Inside The Forgotten Energy ETFs
).
The product has been decimated over the long term, losing a
substantial amount thanks to contango and extreme weakness in
natural gas prices. However, it appears as though natural gas may
have bottomed out, as UNG has actually gained 19% in the past three
month period.
Soybeans
The global soybean market is currently dominated by three
countries; the U.S., Brazil, and Argentina. Of these three, the
U.S. is the largest exporter, putting out just over half of the
world's exports, followed by a 35% share for Brazil.
Currently, China is the destination for the vast majority of
these exports, helping push US exports of the product up
by close to 81%
over the past 15 year period. Given the surging demand for the crop
and the limited supply of soybeans outside a few nations, soybeans
could continue to be a major growth market for the U.S. for quite
some time (read
Top Commodity ETFs In This Uncertain Market
).
For investors looking to play this product in ETF form, there is
currently one option, the
Teucrium Soybeans ETF (
SOYB
)
. This relatively new fund hasn't really caught on with investors
as of yet, as it just has $2.4 million in AUM and trades less than
10,000 shares a day on average.
Part of this could be due to the relatively high fees as the ETF
charges investors 1.53% a year in expenses. However, another issue
could be the relatively unknown quantity that is soybeans, the
product doesn't get the same amount of press as other more
well-known commodities in the agricultural space.
This is somewhat surprising as returns haven't been too bad in
SOYB, as much like CORN, this fund spreads out exposure in order to
hopefully mitigate contango problems. Over the fund's short
lifetime (it debuted in September of 2011), it has added about
1.5%, while it has gained about 11% in the past one month
period.
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TEUCRM-CORN FD (CORN): ETF Research Reports
TEUCRM-SOYBEAN (SOYB): ETF Research Reports
US-NATRL GAS FD (UNG): ETF Research Reports
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