There are a number of thematic exchange-traded funds (ETFs) for investing in agricultural commodities. And we’ve got beforehand mentioned just a few (, and ). Now, as soybean costs are at multi-year highs, let’s lengthen the dialogue to a different agricultural fund that focuses on this commodity.
Soybean is an oilseed crop. About 85% of soybeans cultivated are used as animal feed. The relaxation is used for direct human consumption.
When the oilseed is crushed, the result’s soybean meal and soybean oil. Archer-Daniels-Midland (NYSE:) and Bunge (NYSE:) are among the many main names that course of soybeans.
According to the US Department of Agriculture (USDA):
“Processed soybeans are the world’s largest source of animal protein feed and the second largest source of vegetable oil. The United States is the world’s leading soybean producer and the second-leading exporter.”
The prime exporter of soybeans is Brazil. On the opposite facet of the equation is China, the world’s most populous nation. It is the biggest soybean importer worldwide. Around 60% of the US agricultural produce exports to China are soybeans.
Otsuka Pharmaceutical, which is a part of Japanese Otsuka Holdings (OTC:), highlights:
“The world’s biggest soybean producer, the US, produces about 73 million tons per year. Its population, however, only consumes on average about 40 grams of soy per person per year. This is less than the amount eaten in one day by the average person in Japan.”
In different phrases, the Western eating regimen doesn’t use soybeans as a lot as Japan or China, the nation that primarily impacts the demand and therefore the worth of soybeans. China can be seeing a robust hog herd restoration from the swine fever epidemic that affected earlier quarters. As a outcome, the nation has an elevated demand for soybean meal-based animal feed.
Before agricultural ETFs grew to become extensively out there, buyers would sometimes commerce by-product contracts on soybeans at futures and choices exchanges, such because the CME Group. ETFs have launched a brand new (and probably simpler) method to spend money on such commodities.
Many monetary planners level out that commodity funding may help diversify conventional inventory and bond portfolios. With that info, this is our fund that might attraction to a variety of buyers.
Teucrium Soybean Fund
- Current Price: $23.37
- 52-Week Range: $13.38 – $23.39
- Expense Ratio: 2.34% per 12 months
The Teucrium Soybean (NYSE:) offers buyers publicity to soybean futures contracts with out the necessity to open a futures buying and selling account. The fund began buying and selling in September 2011, and property below administration are round $93 million.
SOYB tracks the efficiency of three soybean futures contracts (with completely different expiration dates) which are traded on the Chicago Board of Trade. In different phrases, it doesn’t monitor the spot value of soybeans.
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So far in 2021, SOYB is up near 20% and hovering at multi-year highs. Soybean bulls may wish to put the fund on their radar and take into account shopping for the dips. However, in addition they have to do not forget that the fund has a excessive expense ratio.
Finally, at any time when we cowl commodity-based ETFs which are based mostly on futures contracts, we remind readers that funding in futures contracts (even by way of funds) could be risky.
Farmers and agricultural companies use futures markets to hedge their dangers. Therefore, these markets have an necessary function. However, every commodity additionally has distinctive buying and selling traits in addition to provide and demand properties. Therefore, previous to investing, people would want to do correct due diligence.
Several ideas, resembling “rolling-over,” “contango” and “backwardation,” which we’ve got earlier than, are necessary for appreciating how futures contracts often behave. Futures merchants commonly roll from one futures contract to a different. Otherwise, they could possibly be topic to bodily supply of the commodity. This rolling over creates both a constructive (in backwardation markets) or unfavorable (in contango markets) roll yield.
In easy phrases, backwardation sometimes means demand exceeds provide, i.e., markets need the produce now. So when the soybean market is in backwardation, farmers would wish to promote their produce right now versus a future date. They wouldn’t have an incentive to retailer soybeans to promote sooner or later.
Bloomberg lately reported that commodities, together with soybeans, are in steep backwardation. Therefore, the present demand may proceed to push up costs. However, potential buyers would want to maintain a detailed eye on the stability between international provide and demand.