Commodity ETF Alert April 2011 Issue

| April 12, 2011 | 0 Comments



Winter is done.  Temperatures are rising.  The snow is melting.  And more importantly, the ground is thawing.

You know what that means…

Planting season.

Right about now, farmers are deciding what crops to plant.  They’re looking at grain prices across the globe.  And they’re studying weather patterns.

Once they decide what the most profitable course of action is, they’ll hit the fields.  In fact, as you read this, seeds are being sown into the earth.

In a few months time, those seeds will produce ears of corn or sheaves of wheat.

This year’s planting season is more interesting than usual… You see, grain prices have been screaming higher.

In particular, corn prices recently hit all-time highs.  And just last year, wheat was the one shooting through the roof.

So with prices so much higher than historical averages, are grains still a good investment?

In a word – yes.  Here’s why…

Demand for grains is soaring.

Wealth levels in developing countries such as China and India are increasing at a rapid rate.  As a result, people across the world are increasing their consumption of the big three grains – wheat, corn, and soybeans.

You see, families tend to switch from rice, a cheaper grain, to more expensive grains such as corn or wheat as their income grows.  Not to mention, corn syrup is a common ingredient in processed food… a luxury item in poorer parts of the world.

What’s more, demand for meat is also increasing rapidly in developing countries.  As you might expect, higher income levels also lead to greater amounts of meat in a person’s diet.

And guess how meat producing livestock are fed?  With grains of course!  Corn, wheat, and soybeans are all common (and vital) ingredients in livestock feed.

No matter how you slice it, grains are in high demand.

But how about corn?  It’s at record highs… Can high demand keep the price climbing?

We think so.

Even with huge crop yields, grain inventories all over the globe are dropping.  In the US, the world’s largest corn producer, inventories are at 15-year lows… even though last year was the third largest crop on record!

And that’s not all…

Wheat is having a strong year.  But, it’s not anywhere near the record highs set back in 2008… wheat traded over $13 a bushel back then.  As of this writing, wheat futures were trading for $7.50 a bushel.  Clearly, wheat has a lot more room to run.

Let’s put it another way… as long as the world’s population continues eating bread, wheat is going to be in demand.

And don’t forget about soybeans.  They’re also in great position for a big climb.

Soybeans are trading right around $13.30 a bushel.  That’s still a ways away from the record high price of over $16.

Plus, soybeans are a major source of protein.  They make a solid replacement for meat… which is getting more expensive as livestock prices rise.

As you can see, each of the major grains has room to run higher.  Record highs or not… exponential demand can send prices to the moon.

Here’s the bottom line…

Grains are in great position to continue their meteoric rise.

Growing wealth among developing countries is causing grain demand to skyrocket. Even a record crop this year likely won’t create enough supply to meet demand.  And that means inventories will steadily drop.

What’s more, any blip at all in the weather this season could create serious supply issues.  An unexpected freeze or major flood… these negative weather events could send grains prices through the roof.

Now’s the time to add grains to your portfolio.

How do we do it?

There’s a great way to invest in corn, wheat, and soybeans… all in one place.  The iPath Dow Jones UBS Grains ETN (JJG) uses futures contracts to track the price of corn, wheat, and soybeans.

Grab your shares of JJG to profit from the explosive demand for grains.


We’re in a great spot to profit from rising prices in the iPath Dow Jones UBS Grains ETN (JJG).  JJG is an exchange traded note (ETN).  The price and movement of the ETN is based on an index tied to futures contracts in corn, soybeans, and wheat. Currently, JJG is weighted as 40% corn, 40% soybeans, and 20% wheat – though those percentages can change based on market conditions.


Take a look at the chart…


JJG is currently trading just over $54.  As you can see, the shares are well below the highs of over $70 in 2009.  Let’s take advantage of today’s cheaper grains prices. With demand for grains soaring, we think JJG can go back up to $70, and even higher.


The iPath Dow Jones UBS Grains ETN (JJG) is trading at $54.35.
Buy JJG up to $56.50 per share.
Our profit target is $70.00 or more.
Don’t forget your position sizing.

Commodity Review

Energy JJE $24.88 $23.80    4.5%
Grains JJG $55.91 $55.92    0.0%
Industrial Metals JJM $48.35 $48.44   -0.2%
Precious Metals JJP $88.91 $84.69    5.0%
Softs JJS $88.24 $95.07   -7.2%
Livestock COW $31.86 $31.37    1.6%
All Commodities DJP $52.10 $51.29    1.6%


Oil prices are soaring!

The price of crude oil crested $110 a barrel on continued unrest in the Middle East. And as is usually the case, higher oil prices are driving most energy commodities higher.

JJE recently reached a high of $25.34… good for a solid 11% gain.  And it certainly has the potential to go much higher.

With oil prices through the roof and natural gas picking up steam, energy commodities are the place to be right now.

In fact, UNL continues to thrive.  Just recently, our position posted 13% returns.  Not bad for our first month in the trade.

Hang on to your positions in JJE and UNL for bigger gains ahead.


The surging demand for grains is creating an opportunity for profit.  As I discussed above, we’re going to buy grains while they’re hot.

See above for details…


Copper and other industrial metals are once again on the rise.

For a time, copper was fighting strong headwinds.  Inflation in China, the Japanese disaster, and rising oil prices all conspired to slow copper’s record rise.

But after a minor pullback, copper is again leading industrial metals to new heights. And with global crises seemingly under control, our position in JJC is looking strong.

Let’s continue holding JJC for bigger upside potential.


Gold and silver are back in vogue.  Both are steadily moving higher, with gold setting record highs… and closing in on $1,500 an ounce.

Gold continues to look strong.  Our position in IAU hit a recent high of $14.41, a solid 9% gain.

Platinum is also benefiting from the recent precious metals run.  Our PGM position climbed to new highs, returning a stellar 21% at the peak.

Continued global uncertainty is keeping a steady interest in gold, silver, and platinum. And we don’t expect it to reverse anytime soon.

Hang onto both IAU and PGM for bigger profits ahead.


Soft commodities continue to be the most volatile commodity sector.

Cotton is near record highs but trades limit up or limit down on any given day.  Cocoa has also been on a rollercoaster of uncertainty as the political situation in the Ivory Coast heads toward resolution.

Sugar appears to be trending downward… the fundamentals don’t look very good right now.  Coffee is climbing and approaching new record highs.  Don’t be surprised if your morning cup of joe costs a bit more in coming weeks.

As always, we’ll keep an eye on the softs for any profit opportunities.  For now, the risk in this sector is too high for our taste.


Livestock commodities remain slightly bearish.

Live cattle prices have taken a step back while lean hog prices are holding steady. Overall, livestock futures are trending slowly downward.

Higher grain prices are finally taking their toll.  Corn (and sometimes wheat) are the main ingredients in livestock feed.  And higher animal feed costs are pushing livestock prices to the point where demand is drying up.

We may see a reversal in the downward trend if the economy continues to gain steam.  But for now, we’re avoiding livestock.

Portfolio Changes

  • This month we’re adding Grains (JJG) to the portfolio.  See above for all the details.

Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.