What’s Killing The Grain ETF (JJG)?

by on April 1, 2010 | ETFs Mentioned:

After falling off a cliff when the global economy began to sputter in late 2008, most commodities enjoyed a relatively strong recovery throughout the final three quarters of 2009. But when the calendars turned to 2010, fortunes reversed and natural resources began to slide, as a stronger dollar and weakening demand weighed on prices. While all types of commodities have seen a poor start to 2010, few have been as hard hit as agricultural commodities, which are down sharply across the board. One of the worst performers so far this year in the Agricultural Commodities ETFdb Category has been iPath DJ-AIG Grains Total Return Sub-IndexSM ETN (JJG), which lost nearly than 17% in the first quarter of the year.

This fund tracks the Dow Jones-UBS Grains Subindex Total Return, a sub-index of the Dow Jones-UBS Commodity Index Total Return. This benchmark reflects the returns that are potentially available through an unleveraged investment in the futures contracts on physical commodities. Currently, the fund is broken down between three commodities which are traded on U.S. exchanges: soybeans (40%), corn (36%) and wheat (24%). While a stronger dollar has hurt all three of the commodities in the fund, there are a few specific reasons as to why each of these grains have seen a rough first quarter in 2010 (for a more in-depth look at agricultural ETF investing, read this Ultimate Guide to Agricultural ETFs).


Soybean prices have been sinking for a variety of reasons. Price trends in recent years have resulted in acreage shifts, meaning that soybeans were planted over corn and wheat in certain areas. This cycle has had some obvious effects; soybean supply has now surged. Patrick Westhoff, Food and Agricultural Policy Research Institute (FAPRI) co-director, also cited falling livestock demand and less biodiesel production as other possible reasons for soybeans’ decline.

A recent report from the U.S. Agriculture Department indicated that 2010 looks to be a record year for soybean production, as farmers plan to plant 78.1 million acres of the crop. The report also said that stockpiles of soybeans are larger than expected, sending prices falling to finish the first quarter.


When oil was over $150, corn was in high demand as firms flocked to the commodity as a substitute for increasingly expensive gasoline. When oil tumbled to near $35 per barrel demand for ethanol plummeted. Even with oil now hovering around $85, a glut of corn has sunk the price of the product (read about a new corn ETF on the horizon).

The same USDA report that sent soybean prices lower revealed that farmers are expected to plant about 89 million acres of corn this year, a 3% jump from each of the previous years. This expectation of a spike in supply has also weighed on prices in 2010.


Wheat is a critical component of JJGWheat prices recently hit a low for the year as an abundant supply sent prices of the grain tumbling. In addition, American wheat growers have been pressured by increased foreign competition, as well as mild weather. Moreover, a general lack of freezes, monsoons, and other natural calamities have kept supplies higher than usual, pushing prices down across the board.

Farmers expect to plant about 54 million acres of wheat in 2010, or about 9% less than they did in 2009. However, winter wheat plantings beat previous expectations by about 2%, contributing to abundant supplies.


After being hammered in the first quarter, some believe that these commodities still aren’t out of the woods. U.S. corn prices may drop by about 10% and soybean prices by 5% with favorable weather says Jay O’Neil, a researcher at Kansas State University. O’Neil notes that U.S. prices are artificially high due to fund investment, suggesting that any pull out by investors could sink commodity based products such as JJG. Either way, it looks as if JJG and the grain markets are in for an interesting, and volatile, spring.

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Disclosure: no positions at time of writing.