By Anna J. Park
Grain produce and agriculture-related exchange traded funds (ETFs) have been rallying lately as global investors shift their focus to commodities.
The grain produce market has seen a surge in prices since last summer, as the total amount of global agricultural output declined due to several unfavorable factors ― increased demand from China, abnormal climate conditions like La Nina and dry weather negatively impacting U.S. and South American crop yields, as well as disrupted logistics networks due to the COVID-19 pandemic.
Reflecting the lack of supply in the agricultural produce market, prices of agricultural derivatives have been soaring. According to the Chicago Board of Trade (CBOT), soybean prices rose more than 50 percent year-on-year as of Jan. 15. Corn prices also jumped 37.17 percent year-on-year, while wheat prices rose 17.82 percent during the same period. Soybean and wheat futures trading volume have also hit their highest levels since 2014.
Market watchers also say a weakening dollar is to blame for soaring agricultural produce prices, as investors choose to invest in crop derivatives as a hedging strategy amid concerns over looming inflation.
As a consequence, agriculture-based financial products like ETFs and agricultural funds are enjoying upswings. During the past six months, the growth rate of funds or ETFs related to agricultural crops has been about 30 percent, which is higher than most other commodities during the same period.
Three ETFs listed on the Korean stock market all logged handsome rates of return. "KODEX Soybean Futures ETF" logged a 50 percent jump in its price during the past half year, while "TIGER Agriculture ETF," which tracks four agriculture futures of wheat, corn, sugar and soybeans, logged a 32 percent increase.
ETFs listed in the U.S. market are showing the same bullish trend lately. For instance, "Invesco DB Agriculture Fund" which invests in futures of various crops, such as corn, soybeans, coffee, cotton, and cocoa, has risen 18 percent during the past six months.
Market experts expect the current rally in the crops to continue for the time being.
"The strengthened crop prices, which began in the second half of last year, are expected to continue at least until the first half of this year," Hwang Byung-jin, analyst at NH Investment & Securities, said.
"La Nina impact is forecast to continue throughout the first quarter with a 95 percent chance, and crop harvests could further deteriorate due to dry weather in South American countries, including Brazil and Argentina," he pointed out, adding the weakening dollar could also support the strengthened crop prices.