What’s Gotten Into The Corn ETF?

by on July 1, 2010 | ETFs Mentioned:

Investors checking in on the Teucrium Corn Fund (CORN) yesterday may have been suspicious that another market malfunction was generating bizarre ticker readings. But Wednesday’s performance was no joke; the 8% surge came after commodity traders were shocked yesterday by a U.S. Department of Agriculture report that showed a surprisingly lower corn crop as well as sharply lower corn inventories. This news sent corn prices surging higher by more than 8% on the day as futures came within one cent of triggering a circuit breaker designed to halt markets when there is an excessively large price swing in one day. This sharp uptick came after the report showed one million fewer acres of corn planted this year, as well as 300 million fewer bushels of corn in storage. ”The stocks report is a game-changer because it means there cannot be any weather problems that reduce yields,” said Chip Flory, at the Professional Farmers of America in Iowa. ”The crop is off to a good start, but any weather problems could lead to sharp price gains.”

The decline was driven by a big drop in the number of acres planted in Nebraska and Minnesota, thanks to wet and cold weather earlier in the year that forced these two states to plant 1.3 million acres less of corn than was previously forecast. “If the USDA is right, then it turns out we don’t have those big corn surpluses after all, and that leaves the market vulnerable to weather,” said Don Roose, president of US Commodities in West Des Moines.

The news boosted agricultural commodity ETFs across the board, but had an especially positive impact on the Corn Fund (CORN), the new product from Teucrium Trading that surged higher by 8.1% in Wednesday trading. The fund is designed to reflect the daily changes in percentage terms of a weighted average for three futures contracts for corn: 35% weighting for the second-to-expire contract, 30% weighting for the third-to-expire contract, and 35% weighting for the contract expiring in the December following the expiration of the third-to-expire contract. So CORN doesn’t “roll” all of its holdings every month, potentially reducing the impact of contango on price when the futures curve is sloping upwards [see more fundamentals of CORN]. However, investors have to pay for this unique strategy; CORN’s management fee is 1%. CORN has added another 2.2% in afternoon trading on Thursday and has produced a gain of 5% since its inception [for more on CORN see Inside The Corn ETF].

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Disclosure: No positions at time of writing.