Tag Archive | "Trading Corn Futures Using ETFs"

Trading Corn Futures Using ETFs


Individual Investors Choices For Trading Corn Futures

Trading Corn FuturesWith a historic drought unfolding in the corn belt of the United States and the price of corn futures rising due to an expected shortfall of corn crops, many traders and investors are wondering how trading corn futures can be done profitably.  Those with commodities futures trading accounts can capitalize on the pending shortage of corn by trading corn futures directly from their futures trading accounts.  Individual investors without commodities futures trading accounts can make use of a number of Exchange Traded Funds (ETFs) that derive their price either in whole or partly in relation to the price of corn futures.

While trading corn futures via ETFs has some disadvantages, it is also one of the only ways for individual investors to profit from the potential rise in the price of corn futures due to the expected shortfall in the corn harvest in the United States.  The main disadvantage of trading corn futures using corn related ETFs is that the ETFs can sometimes erode in value due to the need for the ETFs to sell the current month’s futures contracts and buy more expensive futures contracts for further out months.  However, the impact of this condition, which is known in the ETF world as “price decay”, would only be felt if corn futures are flat or fall in price.  If corn futures rise in anticipation of or as a result of corn harvests coming up short, then the ETFs that derive their value from corn futures contracts should also rise in price.

Trading Corn Futures Using ETFs

The following ETF can be used for trading corn futures contracts. 

  • Teucrium Corn Fund (NYSE:  CORN) – CORN seeks to replicate, minus expenses, the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for corn that are traded on the Chicago Board of Trade (CBOT).

The following ETFs offer diversification away from trading corn futures exclusively by  providing broad exposure to other food-related futures contracts, which are likely to be affected by similar weather and micro-economic forces as corn futures contracts.

  • PowerShares DB Agriculture Fund (NYSE:  DBA) – DBA seeks to replicate, minus expenses, the performance of the DBIQ Diversified Agriculture Index, which is composed of futures contracts that include some of the most widely traded agricultural commodities, including corn.
  • Teucrium Agricultural Fund (NYSE:  TAGS) – TAGS is a fund-of-funds that invests four commodity funds that the company runs, including corn, wheat, soybeans and sugar commodity funds.

Buying or selling short these ETFs allows individual investors and traders of all types to participate in trading corn futures contracts.  Buying these ETFs will put individual investors and traders in a long corn futures position to one degree or another, with the expectation that corn futures prices will rise.  If an investor or trader thinks that corn futures have peaked and will fall in price, then shorting the ETFs would be the way to play these corn related ETFs.

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