A legume native to Asia, soybeans trace their history far back, long before written records. Over time, the commodity’s applications have evolved tremendously from being considered sacred for its use in crop rotation, to becoming one of the main fixtures in our everyday diets. Today, the crop is best known for its use in the production of numerous foods, including soybean oil, soy meal, various meat and dairy substitutes, as well as animal feed. Soybean production is dominated by the U.S., as the commodity ranks the second most valuable agricultural export, trailing behind only corn [for more soybean news and analysis subscribe to our free newsletter].
As soybean demand continues to climb across the globe, its use as powerful trading instrument has made it one of the most popular agricultural commodities on the market. Its futures, traded on the Chicago Board of Exchange, are some of the most popular contracts. And thanks to the ever-evolving world of ETFs, investors now have access to soybean futures exposure through a single equity ticker.
The Teucrium Soybean Fund (SOYB) made its debut in September of 2011, and since then it has been the only fund available on the market to focus exclusively on the commodity. Compared to other single-commodity ETFs, SOYB might not be the largest in terms of total assets, but it has been gaining popularity among niche investors, cementing its foothold in the commodities space. But unlike traditional futures-based products, SOYB does not invest in only front-month futures. Instead, the fund employs a unique methodology that is designed to combat the adverse affects of contango [see also 50 Ways To Invest In Agriculture].
To achieve its investment objective, SOYB spreads its exposure across three separate maturities: second-to-expire CBOT Soybean Futures Contract weighted 35%, third-to-expire CBOT Soybean futures contract weighted 30%, and the CBOT Soybean Futures Contract expiring in the November following the expiration month of the third-to-expire contract weighted 35%. This model allows the fund to mitigate the effects of contango and backwardation, which could result in SOYB delivering returns that correspond more closely to the movements of spot prices of soybeans. The unique methodology does come with a relatively high price tag however, charging investors an expense of 100 basis points.
Below are the quick stats (as of 10/23/2012) to help investors get a better feel for this unique ETF.
- Issuer: Teucrium
- Expense Ratio: 1.00%
- Inception: 09/19/2010
- Total Assets: $8.4 M
- Average Daily Volume: 19,100
Who Should Use SOYB
Although SOYB is publicly available to anyone with a trading account, it is not a product that is intended for everyone. First and foremost, SOYB should not be used by long-term, buy-and-hold investors: positions in futures-based products, like SOYB, can quickly turn sour and should be monitored frequently. Instead, SOYB will be most appropriate for active and niche investors who already have a firm grasp on the agricultural world [see also Four Commodities To Buy Before Roubini’s “Perfect Storm”].
As with all commodity investments, holders of SOYB must stay on top of the latest developing trends and headlines in the industry, as anything from severe droughts to soaring temperatures can significantly affect the price of soybeans. Investors should focus on news and weather reports from the commodity’s top producer, the United States, as well as other major players like Argentina, Brazil, and China. For those of you who meet the aforementioned requirements, SOYB will be a great way to take advantage of the market and its unique strategy will allow you to play the commodity in a way that would be relatively expensive and difficult to implement on your own.
Disclosure: No positions at time of writing.