Severe weather causing a storm in agricultural ETPs

Feb 19th, 2018 | By | Category: Commodities

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London-based commodity ETP specialist ETF Securities has reported that weekly inflows into its agricultural ETPs reached their largest levels ever last week, totalling $54.7 million.

Severe weather causing a storm in agricultural ETPs

ETF Securities’ broad-basket agricultural ETP is up 3.0% YTD while the ETFS Wheat is up 7.5%.

The firm notes that the majority of agricultural commodities are trading higher in 2018 owing to severe weather conditions affecting forecasts of supply.

The boost to prices has encouraged trend-following investors to enter the market with agricultural basket ETPs offering a convenient one-ticket solution to broad market exposure.

Aneeka Gupta, associate director, equity & commodities research at ETF Securities, commented, “Wheat prices have been benefiting from the ongoing dry spell in key US growing areas that is hampering the development of the dormant winter wheat. The severe dry conditions in Argentina are supporting soybean and soybean meal prices higher. Meanwhile USDA’s February World Agricultural Supply and Demand (WASDE) report, shows lower closing inventories for corn stocks, lending buoyancy to prices. Added to that the weaker US dollar is also helping the value of dollar-denominated exports in many agricultural commodities.”

ETF Securities offers the ETFS Agriculture (AIGA US) which tracks futures contracts related to nine separate commodities. The largest exposures are to corn (20.9%), soybeans (20.3%), wheat (11.3%), soybean meal (10.6%), and sugar (10.4%). AIGA trades in US dollars but is also available in a pounds sterling-denominated share class under the ticker AGAP LN. It is up roughly 3% year-to-date, has approximately $380 million in assets under management, and costs 0.49% in management fees.

One of the stars thus far this year amongst the firm’s agricultural ETPs is the ETFS Wheat (WEAT LN) which is up 7.5% year-to-date. It has roughly $100m in AUM and also costs 0.49% in management fees.

ETF Securities also reported that inflows into its industrial metal basket ETPs rebounded to $42.1m reversing the prior week’s trend of outflows. Gupta said, “The pronounced US dollar weakness coupled with higher than expected inflation data in the US has lent buoyancy to industrial metal prices. Industrial metals are also viewed as a hedge against inflation.”

The firm’s largest broad basket industrial metals ETP is the ETFS Industrial Metals (AIGI LN), which has $260m and management fees of 0.49%.

Inflows into the firm’s Nickel ETPs were also significant at $21.4m for the week. These inflows have started to gather momentum, haven risen now for the sixth week in a row. Nickel was also the best performer last week amongst the industrial metals complex, with a price rise of 7.3%. The ETFS Nickel (NICK LN) is the firm’s largest industrial metal ETP with AUM of $295m. It also costs 0.49% in management fees.

Looking at the future path for nickel price performance, Gupta said, “The growth associated with electric vehicle batteries is expected to play a role in demand for nickel that currently only accounts for 3% of total demand. Added to that, roughly 50% of the current nickel mine supply is suitable for battery use as the low grade nickel products are inadequate for battery manufacturing, raising the need for further production as global nickel inventories have been trading lower.”

Precious metal ETPs bucked the trend of inflows however, with the firm’s gold ETPs experiencing $103.5m redemptions which ETF Securities ascribes to profit-taking. Gold prices advanced to $1360 per troy ounce during the week, attaining an 18-month high on the back of higher than expected inflation data and weaker retail sales in the US.

Outflows from platinum ETPs continued for the seventh week in a row. Gupta notes, “According to the European Automobile Manufacturers’ Association, while new car registrations in the EU rose by 7.1% year-on-year, the percentage of diesel cars as a proportion of all new cars registered declined by 33%. This is likely to weigh on platinum, known for its use in pollution abatement technologies used in diesel vehicles.”

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