The heat wave that has been sweeping much of the country in recent weeks finally broke over the weekend, providing a minor measure of relief after a prolonged stretch of record temperatures. The unseasonably warm weather has already contributed directly to dozens of deaths and injuries, as well as general discomfort for millions of Americans.
But the recent heat wave has been a welcome development for a number of commodities, as the soaring temperatures gave meaningful boosts to a number of natural resource prices. While stocks and bonds generally receive minimal impact from weather conditions, commodities can be a different story. And as the ETFs below indicate, anticipating extreme conditions can be one way to generate some compelling investment ideas [for more ETF insights, sign up for the free ETFdb newsletter].
1. ProShares Ultra DJ-UBS Natural Gas (BOIL)
Natural gas has grown to be one of the most frustrating commodities on the market with its prices taking an unprecedented free fall in recent years. The second quarter of 2012, however, was a major turning point for the troubled commodity, taking natural gas on its most wild ride yet. Initially, low supplies and fortunate weather helped boost demand for the fossil fuel but at the end of May, higher average supply levels combined with lackluster economic reports put major downward pressure on prices.
As the beginning of summer kicked off, severe heat waves swept across the majority of the country, forcing Americans to crank their A/Cs to find some kind of reprieve from the sweltering heat. The larger drawdowns of natural gas stockpiles forced prices to surge as demand continued to increase. Although many might not have enjoyed the oppressive weather conditions, investors in ProShares’ BOIL sure had plenty of compensation for their “discomforts.” Over the last month, the fund has skyrocketed, gaining over 30% during a four-week period (though BOIL cooled off a bit in Tuesday trading, losing about 10%) [see also Inside Natural Gas And UNG's Wild Q2].
2. Teucrium Corn Fund (CORN)
This summer’s heat wave has landed a devastating blow to a large part of the Midwestern United States, particularly the region dubbed the “Corn Belt.” Scorching heat combined with weeks of drought has quite literally baked the Corn Belt, ruining the majority of this year’s corn crop. July is a key month for the commodity since the bulk of corn crop will pollinate – a crucial phase of the growing process that is particularly sensitive to heat.
And with July recording some of the highest temperature levels in history, many farmers are already reporting serious corn crop shortfalls, forcing market prices to skyrocket. As a result, Teucrium’s futures-based Corn Fund has also surged over the last four weeks, posting a gain of close to 30%.
3. Teucrium Soybean Fund (SOYB)
Soybeans were another agricultural commodity hit hard by the recent heat waves, forcing prices to hit their highest levels in four years. Soybean supplies around the world were significantly hindered after severe weather damaged crops in South America. The shortage opened up an opportunity for the United States to fill the gap and ramp up production; farmers planted approximately 76.1 million acres of soybeans this year to fill the increased export demand.
But as temperatures in the United States continued to rise and dry spells were extended, soybean crop conditions steadily worsened. The significant decrease in supply levels combined with the sharp increase in global demand pushed soybean prices skyward. Alongside the commodity’s rally, Teucrium’s Soybean Fund managed to surge over 9.2% in the last four weeks [see also 5 ETFs That Will Live Or Die By China].
4. Credit Suisse Global Warming Index ETN (GWO)
With temperatures reaching record-breaking levels this summer, there is no shortage of global warming enthusiasts who have been using the recent heat wave as support for their campaign. Over recent years, several companies have committed themselves to minimizing the harmful impact of global warming on the world. And in 2008, ELEMENTS debuted the first fund to capture the performance of these particular environmentally-friendly stocks.
Although GWO has struggled to accumulate any significant capital inflow and trades very infrequently, it popped with a bit of interest (finally) last week. GWO had jumped higher, but declined significantly in Tuesday trading as a single 100-share order was executed at a much lower price.
Disclosure: No positions at time of writing.