What is Agricultural ETF?

Agricultural commodities such as corn, soybeans and wheat are essential for the supply of food grains, creating a huge global commodity market for buying and selling them. However, individual agricultural commodities are subject to dramatic instability related to factors including weather, season, population and other factors.

Investors seeking exposure to agricultural commodities may prefer to take an agri-centric exchange-traded fund (ETF) instead. These ETFs diversify into a variety of commodity categories by investing in futures contracts.

Agricultural ETFs are based on the main agricultural commodity basket or index. When it comes to exposure, the biggest difference between the 10 products in the segment is strategy and coverage. However, they can vary greatly depending on the weight and their selective contracts. Their styles range from procedures using consumption-weighted baskets, product-weighted baskets, liquidity or multifactor models to weight contracts. The group also has a number of strategies for selecting specific contracts to hold goods, many of which are aimed at reducing profits from contango or backwardness.

Agricultural Commodities ETF

Prices of agricultural commodities are rising as extreme weather conditions affect agriculture around the world. And as the USDA lowers its production forecast, food inflation is expected to rise further in the coming months. It can boost the performance of items like coffee, wheat and corn. Therefore, Commodity ETF Tucrium Corn (Corn), iPath Series B Bloomberg Coffee Subindex Total Return (JO) and Tucrium Wheat (VEAT) can now be solid rods. 

Extreme weather conditions around the world have led to declining agricultural production, which has pushed up food prices. Rising temperatures and a weak drought in Dakota and central Canada have pushed wheat prices to nearly eight-year highs.

With drought conditions hampering production, the United States Department of Agriculture (USDA) expects wheat production to be 1,697 million for the 2021-22 marketing year, down from 49 million bushels in July estimates. This has led to a rally in commodity futures markets, with wheat futures hitting all-time highs since May. Corn futures also gained momentum after the USDA lowered its supply and commodity forecasts. Coffee prices are also rising due to the devastating frosts in Brazil. And when restaurants reopen, increasing demand with limited supply will definitely push up further prices. Furthermore, epidemic-related shipping disruptions and a shortage of shipping containers could push up freight prices to multi-year highs in the coming months. Therefore, wheat , corn and coffee futures have skyrocketed.

More speculative investors may be motivated by the idea of ​​investing directly in commodities, hoping to take advantage of changes in market prices. You can get exposure for commodities by buying futures contracts, there are also many ETFs and Exchange Traded Notes (ETNs) that provide more diverse access to commodities.

Some ETFs and ETNs give investors exposure to specific commodities (such as corn), livestock (COW), coffee (JO), cereals (GRU), cocoa (NIB) and sugar (SGG), while others offer a basket of commodities. As an example of the latter, Invesco DB Agriculture ETF (DBA) invests in corn, wheat, soybean and sugar futures contracts.

Agriculture ETF

Exchange Traded Funds (ETFs) are a great tool for investors to get diversified exposure to the agricultural sector. Market Vectors Agribusiness ETF (MOO), for example, provides access to a wide variety of businesses, investing in companies that earn at least 50% of their farm revenue. The best performing commodity ETF based on 2020 is Tucrium Soybean ETF (SOYB).

As with any type of ETF, investors should carefully consider the management fees of each ETF and the performance of the fund tracked index.

Farm REITs

These REITs usually buy farmland and then rent it out to farmers. Farmland REITs offer many benefits. For one thing, they offer more diversification than just buying a single farm, as they allow an investor to have multiple farm interests across a wide geographical area.

Farmland REITs also offer more liquidity than physical farm ownership, as most of these shares in REITs can be sold quickly on stock exchanges. And farm REITs also reduce the amount of capital required to invest in farmland, as the minimum investment is only the price of one REIT share.