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ETF Update: Coffee, Cocoa and Sugar ETFs Strong; Silver ETF Up; Commodities Bottom

by: Tom Lydon August 28, 2008 | about stocks: DBA / DBO / FUD / GSG / IAU / JO / NIB / SLV    
Tom Lydon

Tom Lydon

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Coffee, Cocoa and Sugar Production Make Investors Hungry for Soft ETFs

Cocoa exports from Nigeria doubled in the second quarter, making investors coo-coo for the cocoa ETN.

Nigeria is the world’s fourth-largest producer of the key chocolate ingredient, reports Dulue Mbachu for Bloomberg. The stepped-up production was as a result of government incentives. Production could have actually been higher, since the official tally doesn’t account for cocoa smuggled out of the country.

The top three cocoa producers are Ivory Coast, Ghana and Indonesia, according to the International Cocoa Organization. Cocoa prices have been on an overall uptrend in the last year, up 37% in July from a year ago. Prices are now at their highest levels in two months.

Sugar, in particular, is benefiting from a renewed interest in soft commodities. After Tuesday’s gain, sugar continued the upswing and went to a 21-month high, reports Nigel Hunt for Reuters. Arabica futures are turning higher, too, leading to a run-up in coffee prices.

Is anybody else hungry?

  • iPath DJ AIG Coffee TR Sub-Index ETN (JO), up 1.5% since July 8 inception
  • iPath DJ AIG Cocoa TR Sub-Index (NIB), down 4.5% since July 8 inception
  • PowerShares DB Agriculture (DBA), up 11.3% year-to-date (holds 19.1% in sugar futures)
  • UBS E-TRACS CMCI Food (FUD), up 5.6% since April 4 inception (holds sugar, coffee and cocoa)

Despite Price Plunge, Silver and Its ETF Gain Assets On Continued Demand

iShares Silver Trust (SLV), the largest silver-backed ETF, has somehow defied the price of silver dropping.

While silver has lost 40% of its value, the holdings within SLV have only gone up to a record 6,474.04 tonnes of average 1,000 oz. silver bars, reports Melissa Pestini for Silver Investing News.

Any thoughts of silver being dumped once the silver bull market cooled off seem to have dissipated, as investors don’t appear to be panicking with the metal. Instead, they’re taking advantage of the lower prices so that they can buy more of it. ETFs are a nice package for investors looking to buy silver, as prices are low, and there is no physical delivery.

Silver will always have a demand, as it has dated back to ancient times, and is used for jewelry, high-end tableware, currency coins, utensils and electrical contacts. Contacts and conductors are popular uses, and antimicrobial and antibiotic uses for silver are being tested right now.

SLV is down 8.5% year-to-date.

If Commodities Are Indeed At the Bottom, It Could Be ETFs’ Gain

Despite the recent correction, commodities are in their seventh year of gains, which has led ETFs to embark on one of their largest growth spurts. Some now think the bottom is in sight, and it’s not because of rising demand, but rather supply cuts.

Corn and soybeans have rebounded as reduced crop yields have pushed U.S. stockpiles to five-year lows, reports Madeline Pearson on Bloomberg.

Supply constraints are becoming more pertinent, and this will separate the performance of each individual commodity. China and India are also driving demand, along with production disruptions, such as drought, flooding and power outages.

Many of the commodities that experienced a correction are showing signs of renewed vigor. Corn and soybeans were down as much as 37% off their highs, but have rebounded in the last two weeks. Delayed plantings threaten to lower U.S. yields, and there’s concern that export tax protests may disrupt supplies from Argentina, the third-largest producer of soybeans and second-largest of corn.

Commodities peaked around July 3 and slumped 21% after the fastest decline through Aug. 15, according to S&P’s GSCI Index of 24 raw materials.

Investor Jim Rogers, chairman of Rogers Holdings, says that over the course of time, commodities are a bull market. But not everyone is so optimistic: one investment strategist says the cycle that began at the turn of the century is done, since the real price of nearly everything extracted or manufactured goes down over time.

Who’s right? You’ll have to wait for the answer.

ETFs of interest:

  • PowerShares DB Agriculture (DBA), up 11.1% year-to-date
  • iShares S&P GSCI Commodity Indexed Trust (GSG), up 14.6% year-to-date
  • iShares COMEX Gold Trust (IAU), down 1.4% year-to-date
  • PowerShares DB Oil (DBO), up 28.6% year-to-date

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