Concerns over Federal Reserve policies have led to very
uncertain trading as of late. In particular, investors have been
wary about investing in commodities during this type of
environment, as a stronger dollar is usually a disaster for
natural resource prices.
While some commodity classes have remained mixed in this type
of environment, agricultural commodities have been especially
weak. In fact, the post popular agricultural commodity fund,
, is down about 1.5% over the past 10 days, underperforming broad
commodity baskets like
in the process.
This ETF is extremely spread out, as no single commodity makes
up more than 15% of the total portfolio, so it is hard to
pinpoint any one product for the weakness. In terms of strength
in this market though, a few of the soft commodity components are
holding firm (read
Invest Like Morgan Stanley with These 5 Commodity
Strength in the space
In this weak market, some commodities have managed to stay
strong and actually produce gains in the past two week period.
These commodities could thus represent pockets of strength in the
space, and ones that, thanks to supply/demand imbalances, may be
better picks going forward for those who want to stay in the
agricultural commodity market.
For these investors, we have highlighted two soft commodities
holding firm, and some interesting exchange-traded ways to play
them. These could be intriguing short term picks for those who
are looking to either make a pairs trade in the commodity world,
or just to focus on soft commodities that actually have a decent
short-term outlook in this uncertain market environment:
While Chinese demand may not be to great in industrial metals,
it has picked up a bit in the agricultural market, specifically
with cotton. The country is now importing a bit more thanks to a
farm support program,
according to Agrimoney
, which is helping to keep demand firm (see
Buy These ETFs to Profit from the Global
Meanwhile, there are dry conditions in many key growing areas
of the U.S. as well, which could further curtail supplies of the
key crop. This trend is especially a problem in Texas, as the
large state is actually the top producer of the crop in the U.S.
by a pretty wide margin.
Plus, cotton futures aren't seeing heavy contango either,
something that can help in futures-based products. The commodity
is actually seeing a modest level of contango when looking at the
next few months-about 2.5%-- while the curve flattens out after
3 Commodity ETFs Still Going Higher
In order to play the cotton market, investors have two
concentrated options. There is the
iPath Dow Jones-UBS Cotton ETN (
iPath Pure Beta Cotton ETN (
BAL is the more popular choice of the bunch, though its
volume and assets are still quite small compared to other
commodity products. CTNN, meanwhile, looks to fight contango with
its contract selection process, though its light volume could
result in wider bid ask spreads.
In terms of performance, CTNN is up only slightly over the
past ten days-adding about 1.8%-- while BAL has surged roughly
6.3% in the same time frame.
Sugar prices have
been pretty weak so far in 2013
, but there is some optimism that prices have bottomed out in
this commodity. Brazil is expected to take a bigger cut of the
demand picture in terms of ethanol, especially if gasoline prices
continue to rise in the nation (thanks to a sluggish Brazilian
real and the end of some subsidies).
Traders were also engaged in a short covering campaign, as
many were anticipating big crops for the full year. This has
unraveled as of late
, with traders racing to cover their shorts, thereby boosting
prices in the process.
Meanwhile, the U.S. government also appears ready to step in
and buy from domestic growers of the crop. This move looks to
boost prices, and
remove up to 300,000 tons
of the commodity from the U.S. market as well.
In the futures market for sugar, prices are a bit contangoed,
with a roll of about 2%. Once again, the curve flattens out after
this, so roll issues shouldn't be too much of a problem in this
commodity either (read
Is USCI The Best Commodity ETF?
Investors have a few options to target the sugar market as
well. Currently, there is the
iPath Dow Jones-UBS Sugar ETN (
iPath Pure Beta Sugar ETN (
SGG is easily the most popular choice in the space, crushing
its counterpart in terms of volume and assets, though it is still
light overall. SGAR, on the other hand, looks to avoid some
contango issues with its contract selecting approach.
Over the last ten days, SGG has added about 1.5% while SGAR
has risen by 2.2%.
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IPATH-DJ-A COTN (BAL): ETF Research Reports
IPATH-PB COTTON (CTNN): ETF Research Reports
PWRSH-DB AGRIC (DBA): ETF Research Reports
IPATH-PB SUGAR (SGAR): ETF Research Reports
IPATH-DJ-A SUGR (SGG): ETF Research Reports
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