Investing in agricultural commodities

Agricultural commodities – What are they? 

While there is no universal definition for agricultural commodities (AC), Cornell Law School provides a succinct delineation of AC as: “Plant and animal products and their by-products, such as crops, forestry products, hydroponics, nursery stock, aquaculture, meat, on-farm generated manure, and fish and seafood products”. The list does not end there though - other examples of what can be classified as agricultural commodities include sugar, coffee, palm oil and more. This is important to note because agricultural commodities are primary sources of consumption for humans. 

Impressive year-to-date returns – Should investors pay attention?

Agricultural commodity ETFs have performed exceptionally well for the year. For example, Teucrium’s Wheat Fund (NYSE:WEAT) and Agricultural Fund (NYSE:TAGS) are both up by double-digits since the beginning of the year. Other AC ETFs covered in this article have also outperformed the market for the year. While past performance in no way guarantees future returns, given the supply and demand shock the industry has experienced, it would not be surprising to see these rallies continue for the short and medium term.  

Why gain exposure to agricultural commodities? 

As aforementioned, agricultural crops serve as primary sources of consumption for our nourishment and sustenance. Crop yields are essential to feeding the continuously increasing global population. In other words, agricultural commodities are something we will always need. One such crop that is of significant value is wheat - which according to this peer-reviewed article is a staple crop for 35% of the world’s population. 

Ukraine’s exports of wheat

Russia’s invasion of Ukraine was a devastating blow to the world grain supply. To put it in perspective, from 2020 to 2021, Ukraine exported 44.9 million tonnes of wheat, corn and barley. The conflict, which began earlier this year, has severely impeded the country’s ability to continue its production and export capacity as they deal with Russian aggression. While Ukraine, Russia and Turkey did successfully negotiate and sign a trilateral deal to continue shipments of Ukrainian grain, the nature of the deal is opaque and shaky at best. Case in point: Vladimir Putin’s comments earlier this month, in which he criticized the very same deal he signed, were a catalyst for wheat futures to go up by 6.9%. In other words, there is no guarantee the deal will last given the tumultuous nature of war and the possibility of the deal being nullified. 

Final takeaway on agricultural commodities 

While no one can predict with 100% certainty when geopolitical externalities will subside, it’s unlikely that anyone will be giving up their bread, cereals, or crackers any time soon. As long as demand remains strong, the following ETFs may be of interest to investors seeking exposure to agricultural commodities. 

4 agricultural commodity ETFs worth examining
WEAT – (Teucrium Wheat Fund)

• AUM: $367.40 M 
• Total Expense Ratio: 1.14%
• YTD Performance: +18.29%
• 3-Year Performance: +68.51%

TAGS – (Teucrium Agricultural Fund)

• AUM: $47.33 M 
• Total Expense Ratio: 0.13%
• YTD Performance: +14.92%
• 3-Year Performance: +67.77%

VEGI – (iShares MSCI Global Agriculture Producers ETF)

• AUM: $280.97 M 
• Expense Ratio: 0.39%
• YTD Performance: +2.52%
• 3-Year Performance: +54.76

DBA – (Invesco DB Agriculture Fund ETF)  

• AUM: $1,529.52 M 
• Expense Ratio: 0.91%
• YTD Performance: +4.05%
• 3-Year Performance: +35.32%

Please note this article is for information purposes only and does not constitute investment advice.