First Soybeans ETF Debuts: Teucrium Launches SOYB, CANE, WEAT

by on September 19, 2011 | ETFs Mentioned:

Teucrium, the company behind the first corn ETF and innovative energy commodity products, doubled the size of its product lineup on Monday with the launch of three new single-commodity funds. Two of the new additions to the fast-growing ETF lineup are first-to-market concepts, while a third will offer exposure to a soft commodity already covered by two iPath ETNs. The new Teucrium products are:

  • Teucrium Soybean Fund (SOYB): This fund will invest in CBOT soybean futures, spreading exposure across three separate maturities: second-to-expire CBOT Soybean Futures Contract weighted 35%, third-to-expire CBOT Soybean futures contract weighted 30%, and the CBOT Soybean Futures Contract expiring in the November following the expiration month of the third-to-expire contract weighted 35% [see official SOYB fact sheet].
  • Teucrium Sugar Fund (CANE): This fund will invest in ICE sugar futures, similarly spreading assets across three maturities: the second-to-expire Sugar No. 11 Futures Contract weighted 35%, the third-to-expire Sugar No. 11 Futures Contract weighted 30%, and the Sugar No. 11 Futures Contract expiring in the March following the expiration month of the third-to-expire contract, weighted 35% [see official CANE fact sheet].
  • Teucrium Wheat Fund (WEAT): This fund consists of investments in CBOT wheat futures: the second-to-expire Wheat Futures Contract weighted 35%, the third-to-expire CBOT Wheat Futures Contract weighted 30%, and the CBOT Wheat Futures Contract expiring in the December following the expiration month of the third-to-expire contract weighted 35%. WEAT will be the first pure-play wheat ETF, though there is an existing trio of grains ETPs that include soybeans, corn, and wheat futures [see official WEAT fact sheet].

Soybean ETF First

SOYB will be the first exchange-traded product available to U.S. investors that focuses exclusively on soybeans, one of the most important agricultural commodities in the world. Soybeans are an important source of protein that are used widely in both animal feed and staples of human diets. Fueled in part by rising protein demand linked to urbanization in emerging markets, demand for soybeans has steadily climbed in recent years; soybeans are the second most valuable agricultural export from the U.S., trailing behind only corn.

According to the Department of Agriculture, demand for soybeans is expected to climb by about 30% over the next decade. Not surprisingly, China has become a major driver of soybean demand; the emerging market’s soybean imports now account for about half of the global trade in the commodity [see all the Agricultural Commodity ETFs here].

CBOT soybeans futures contracts represent 5,000 bushels of the crop, and contracts listed include those expiring in January, March, May, July, August, September, and November. Last year, almost $8 billion in soybeans futures were traded each day on the CBOT.

Watching The Weight

Similar to the existing lineup of products targeting corn, crude oil, and natural gas, Teucrium’s new products are designed with the goal of reducing the impact of backwardation and contango on performance. Like most commodity ETFs, SOYB, WEAT, and CANE won’t offer investors exposure to spot prices of the underlying commodities; the slope of the futures curve will impact the risk/return profile of products that use a futures-based strategy.

Whereas some products concentrate exposure in the front month contract–the one closest to expiration–Teucrium’s model for commodity exposure involves spreading assets across multiple maturities. By investing in multiple contract months and considering the seasonality of each commodity, the Teucrium model seeks to mitigate the effects of contango and backwardation–essentially striving to deliver returns that correspond to the movements in the spot prices [see Commodity ETF Investing: Five Factors To Consider].

Tax Details

Like many exchange-traded commodity product, the new funds from Teucrium are structured as publicly traded partnerships for federal income tax purposes. That means that investors in these funds can expect to receive a form K-1 detailing their share in the profits or losses of the partnerships. While completion of a K-1 is a very straightforward task, some investors prefer to avoid the administrative hassle that comes along with the partnership structure.

To avoid that requirement, as well as some potentially undesirable tax consequences of partnerships, some investors elect to achieve commodity exposure through exchange-traded notes. While ETNs expose investors to the credit risk of the issuing institution, they also provide more control over the timing of tax events. Partnerships that invest in commodity futures contracts are generally required to mark to market their holdings annually, meaning that investors may face a tax bill (at a rate blended of short-term and long-term capital gains) even if they didn’t sell a position. Generally, commodity ETNs are taxed only upon a sale [see ETF Research Report: Evaluating Commodity ETPs].

Each of the new ETFs will charge a management fee of 1.0%, roughly in line with the average for the Agricultural Commodities ETFdb Category.

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Disclosure: No positions at time of writing.