Commodity ETFs Rally Continues Amid Russia-Ukraine Conflict

The Ukraine-Russia war saga continues driving commodity prices. In retaliation to Moscow’s attacks, the United States, European Union and the western allies are increasing economic sanctions on Russia in an attempt to isolate it. Various businesses have also abandoned Russia, including oil giants like BP, Shell and Exxon Mobil. Canada is the first Western nation to inform that it will impose a ban on Russian crude oil imports to target Russian energy (per a CNBC article).

Oil prices have been rallying amid the Russia-Ukraine geopolitical crisis. The West Texas Intermediate crude futures climbed above $106 per barrel on Mar 1 and touched the highest mark in seven years. 

Russia’s move is leading to a rise in oil prices as it is among the world’s largest suppliers of oil and natural gas. Russia stands as the world’s second-largest oil producer. European refineries procure most of their crude oil supplies from Russia. Notably, Russia provides about two-fifths of its natural gas supply to Europe. In fact, Russia emerged as the largest natural gas and oil supplier to the European Union in 2021. Not only crude oil but the prolonged war between Ukraine and Russia can also result in constrained supplies of edible oil.

Going on, wheat futures also rose 5.4% to 984 cents per bushel, at the high of the Mar 1 trading session. It stood out as the highest price since Apr 4, 2008 (per a CNBC article). It is important to note that Russia stands as the largest wheat exporter. Ukraine also occupies a spot among the four major wheat exporters (according to JPMorgan). Bank of America states that Russia is responsible for 17% and Ukraine for 12% of the 207-million-ton international wheat trade. Ukraine, in the meanwhile, is famously called the “breadbasket of Europe.”  Ukraine is also a large exporter of corn, rye, barley along with cooking oils.

Market analysts are also worried that the global economies might see a crunch in the supplies of industrial metals if the war lasts long because Russia and Ukraine stand out as major producers. In fact, Russia accounts for 6% of the world’s aluminum production and 7% of its mined nickel.

Russia also manages approximately 10% of the world’s copper reserves. Going by the U.S. Geological Survey, 920,000 tonnes of refined copper was produced by Russia in 2021, accounting for roughly 3.5% of the global output. Russia is also responsible for exporting around 23% of ammonia, 17% potash, 14% of urea and 10% of phosphates.

The surging commodity prices can have a far-reaching impact on global economies like the United States and the U.K., recovering from the pandemic-led slowdown and high inflation levels.

Commodity ETFs to Keep a Track on

There is no denying that Russia and Ukraine hold important positions as exporters in the global commodities market. Thus, the escalation in tensions has sparked a rally in a broad range of commodities.

The latest developments can also slow down production activities and impact the export of commodities and goods. This is true as the tensions have led to supply disruption fears in an already-tight commodity market.

It is important to note that commodity ETFs mostly hold futures and there could be roll costs or yields involved. Therefore, these ETFs are more suitable for short-term trading or hedging activities.

Following are some commodity ETFs that investors can keep track of as the geopolitical crisis worsens:

Teucrium Wheat Fund WEAT

The Teucrium Wheat Fund provides investors an easy way to gain exposure to the price of wheat futures in a brokerage account. The fund has amassed $121.7 million in assets and charges an expense ratio of 1.91% (read: Russia-Ukraine Tensions Flare Up: ETF Strategies to Win).

United States Commodity Index Fund USCI

The United States Commodity Index Fund’s investment objective is for the daily changes in percentage terms of its shares’ net asset value to reflect the daily changes in percentage terms of the SummerHaven Dynamic Commodity Index Total Return, less USCI’s expenses. USCI is designed to be a convenient, cost-effective way for investors to access the returns of a portfolio of commodity futures contracts. It has AUM of $290.2 million and charges a fee of 1.10%.

WisdomTree Enhanced Commodity Strategy Fund GCC

The WisdomTree Enhanced Commodity Strategy Fund is an actively managed exchange-traded fund and intends to provide broad-based exposure to the following four commodity sectors: Energy, Agriculture, Industrial Metals, and Precious Metals primarily through investments in futures contracts. The fund may also invest up to 5% of its net assets in bitcoin futures contracts. It has amassed $273.5 million and an expense ratio of 55 basis points.

Invesco DB Commodity Index Tracking Fund DBC

The Invesco DB Commodity Index Tracking Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Diversified Commodity Index Excess Return (DBIQ Opt Yield Diversified Comm Index ER or Index) plus the interest income from the fund's holdings of primarily US Treasury securities and money market income less the fund's expenses. The fund has AUM of $3.53 billion and an expense ratio of 0.87%.

Teucrium Corn Fund CORN

The Teucrium Corn Fund provides investors an easy way to gain exposure to the price of corn futures in a brokerage account. The fund has amassed $150.8 million in assets and charges an expense ratio of 1.95%.

United States Brent Oil Fund BNO

The United States Brent Oil Fund LP is an exchange-traded security designed to track the daily price movements of Brent crude oil. The fund has AUM of $259.1 million and an expense ratio of 1.13% (read: Oil Rallies Amid Russia-Ukraine Crisis: ETFs to Bet on).

Invesco DB Base Metals Fund DBB

The Invesco DB Base Metals Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Industrial Metals Index Excess Return (DBIQ Opt Yield Industrial Metals Index ER or Index) plus the interest income from the fund's holdings of primarily US Treasury securities and money market income less the fund's expenses. The fund has amassed $594.5 million in assets and charges an expense ratio of 0.77%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.