While the general agricultural commodities market may be retreating, certain commodities are offering sweet gains. Cocoa, for instance, has been reaching record highs as their futures continue surging thanks to supply/demand disruptions.
Harsh weather patterns continue to plague certain corners of the agricultural commodities market, crimping supply, while demand remains elevated. In the case of cocoa, lesser supply has been a boon to revenues for companies like Hershey’s and Mondelez International.
“Severe El Niño-induced dry weather conditions, reported wildfires and an outbreak of the cacao swollen shoot virus have cut down cocoa supply,” CNBC reported. “Demand has also remained strong in countries such as the U.S., helping companies such as Hershey’s and Mondelez better offload rising prices onto consumers.”
In an ag market where supply disruptions could translate to violent market price swings, it’s important to maintain a high degree of flexibility in the market. In the case of rising cocoa prices, this only confirms the need for fund exposure that implements a long-short strategy like the Teucrium AiLA Long-Short Agriculture Strategy ETF (OAIA ).
Per its baseline fund description, OAIA tracks the AiLA-S033 Index. The index is composed of a sophisticated long-short investment strategy in the agriculture sector. It’s a strategy that used to only be available to institutional or qualified investors, but now retail investors have access via OAIA.
“The Index Provider seeks to convert data, such as historical pricing of inter-commodity spreads (the difference between two prices), specific to Component Futures Contracts, into Alpha,” the summary prospectus explained. “A market neutral strategy seeks to profit from both increasing and decreasing prices in one or more markets.”
Alpha in Any Environment
As opposed to a retail investor individually buying the dips in agricultural commodities and eventually selling when prices reach a peak, Teucrium built this strategy into the fund. All the investor has to do is add shares of the fund and allow the strategy to play itself out. This is irrespective of what prices are doing in the background. As the product website states, investors benefit whether the ag market is “up, down, or sideways moving.”
“Not to be overlooked is the ability for the index to take short positions,” noted Jake Hanley, Teucrium’s marketing director and senior portfolio specialist, according to a News & Insights post regarding the surge in cocoa futures. “This means that OAIA presents an opportunity for profit regardless of price direction. Cocoa futures prices have been on the rise, and OAIA is currently long cocoa futures.”
For more news, information, and analysis, visit the Commodities Channel.
