Agriculture ETPs Breaking Out (JJA, WEAT, CORN, JO)
From the end of January through the first week of March the iPath Dow Jones-UBS Agriculture Sub-Index ETN (NYSE: JJA) rallied 20 percent to an 11-month high. The ETN is composed of seven futures contracts on agricultural commodities that include corn (27 percent), soybeans (21 percent), sugar (14 percent), wheat (11 percent), soybean oil (10 percent), coffee (9 percent), and cotton (6 percent).
All seven commodities were higher during the 20 percent rally with several outperforming and boosting the return. Each commodity had its own reason for rallying but as a whole it helped that the U.S. Dollar remained weak, which helps the value of commodities.
Over the longer-term the ETF remains in a downtrend with the high set in early 2011 and the low in late January of this year. The rally has been off a multi-year low and the validity of the gains has yet to be confirmed. It could simply be a short-term parabolic rally in a long-term bear market or it could be the beginning of a new bull market.
One factor recently helping the ETF has been the geopolitical concerns in the Ukraine that is major supplier of wheat. The Teucrium Wheat Fund (NYSE: WEAT) is up 22 percent in the last six weeks and has gotten a big boost the last two weeks. Weather is also always a major factor when it comes to commodities.
The iPath Dow Jones-UBS Coffee Sub-Index ETN (NYSE: JO) is up 70 percent since the end of January and is trading at a yearly high. A large-scale drought has been hitting Brazil, a major supplier of coffee beans, and all indications are that the supply for this year and possibly next will be affected and therefore prices have skyrocketed.
The commodity with the largest weighting in JJA is corn. The Teucrium Corn Fund (NYSE: CORN) is lagging its peers with only up 9 percent gain since the end of January, but it is still easily beating the performance of the stock market. The longer-term chart of CORN is similar to JJA in that the recent gains may only be a rally in a bear market. That being said, over the last three weeks the volume has picked up dramatically as the ETF moves higher, indicating the bounce could be the end of the long-term bear market.
When it comes to choosing the best vehicle to gain exposure to the agricultural commodities it comes down to knowing the industry. Most investors do not follow the weather patterns in Brazil or the Midwest or have the knowledge of issues that that take place in the Ivory Coast in regards to cocoa. This is why an ETN such as JJA makes perfect sense for a retail investor.