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Make Some Dough with Corn & Wheat ETFs

Agriculture ETFs soared in the month of July and the price momentum may continue

Lee Davidson 1 August, 2012 | 3:22PM

Exchange-traded funds (ETFs) and exchange-traded products (ETPs) tracking corn, wheat, and other agricultural commodities surged in July due to adverse weather conditions in some of the world's major grain producing regions.

The current US drought is the worst in 50 years and has spurred a frenzy of buying activity, particularly in corn futures. This severe weather has coincided with corn's crucial pollination phase, thus accentuating the bull-case that corn yields will be substantially less than anticipated despite record levels of new planting this year. Drought conditions have also impacted prices for other agricultural commodities, such as wheat and soybeans.

However, recent news out of Russia provided some relief to the upward trajectory of grains prices. Russian Prime Minister Dmitry Medvedev recently stated that Russia will not curtail wheat exports despite drought-like conditions and a reduced crop, thus avoiding a repeat of the Russia's 2010 grain export ban.

Meanwhile, volatility-linked products were amongst last month's worst performing ETFs and ETPs. Volatility-linked products typically spike when expectations for future equity market volatility (i.e. 'fear') rise. Last month, optimism prevailed regarding the progress European officials were making towards containing the eurozone debt crisis. This culminated in European Central Bank President Mario Draghi's announcing that the ECB would "do whatever it takes" to preserve the euro.  Since early June, the spot VIX has fallen roughly 40%. 

Below is a list of the top ten best and worst performing exchange-traded funds for the month of July:

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Lee Davidson

Lee Davidson  is an ETF analyst with Morningstar Europe.