Ready Or Not, Here Comes A Corn ETF

by on March 30, 2010 | ETFs Mentioned:

Recent years have seen the launch of hundreds of new exchange-traded products, many of which offer increasingly granular exposure to various asset classes. The latest innovation comes in the commodity space, where Vermont-based Teucrium Trading LLC filed with the SEC for an ETF that invests in Chicago Board of Trade Corn Futures. The Teucrium Corn Fund (CORN) would hold a portfolio consisting of three separate corn futures contracts, including:

  • 35% in the second-to-expire CBOT Corn Futures Contract
  • 30% in the third-to-expire CBOT Corn Futures Contract
  • 35% in the Corn Futures Contract expiring in the December following the expiration month of the third-to-expire contract.

So CORN would fall somewhere in the middle of the “contango” continuum for futures-based exchange-traded products. The fund would “roll” its holdings less frequently than ETFs like the United States Natural Gas Fund (UNG) that invest only in near-month contracts, but less frequently than UNG’s cousin, the United States 12 Month Natural Gas Fund (UNL), which invests in the near-month contract and the contracts for the following 11 months.

The impact of contango–an upward-sloping futures curve–on bottom line returns can be significant in commodity products, a fact some investors have learned the hard way (see Three ETFs That Could Be Crushed By Contango). The market for corn futures in currently contangoed; December 2010 contracts cost about 10% more than contracts expiring in July (the second-to-expire contract).

CORN could become the first U.S-listed pure play corn ETF. Corn receives a minor allocation in most diversified commodity products (it makes up about 5.6% of DBC and 7.0% of DJP) and makes up a major slug of the two grains ETPs currently available. The iPath Dow Jones-UBS Grains Total Return ETN (JJG) gives corn a weighting of nearly 36%, while the ELEMENTS MLCX Grain ETN (GRU) gives an allocation of about 27%. Both JJG and GRU are structured as exchange-traded notes (ETNs), meaning that they are exposed to the credit risk of the issuing bank. CORN would be structured as an ETF.

CORN’s expense ratio is listed at 1.0%, making it one of the more expensive commodity products; JJG and GRU both charge an expense ratio of 75 basis points (see the Five Most Expensive ETFs).

For updates on all new ETF product launches, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.