Introduction to Agricultural ETFs: What They Are and How They Work

Agricultural commodities have shaped economies for centuries, yet their potential as a portfolio asset remains underappreciated by many investors. You may already know the fundamental role commodities play in inflation hedging and diversification, but agricultural ETFs offer a distinct advantage—efficient, liquid exposure without the complications of futures trading. As interest in alternative investments grows, agricultural ETFs provide a unique bridge between traditional markets and global macro trends.

ETFs structured around agricultural commodities allow investors to potentially capitalize on fundamental supply-demand imbalances, weather-driven volatility, and geopolitical pressures that impact global food production. Understanding their mechanics, risk factors, and portfolio applications may enable you to better position yourself for the growing landscape of alternative investments.

Understanding Agricultural ETFs

Unlike equity ETFs, typical agricultural ETFs do not hold physical commodities due to their perishable nature. Instead, they use futures contracts to track the performance of key agricultural markets. These funds provide exposure to crops like corn, wheat, soybeans, and sugar—essential global staples with price movements dictated by seasonal trends, climate conditions, and geopolitical shifts.

There are two primary structures for agricultural ETFs:

• Futures-Based ETFs: These funds invest in front-month or rolling futures contracts. While they allow efficient exposure, investors must account for contango, where futures prices exceed spot prices, leading to potential roll losses.
• Physically Backed ETFs: Though more common in metals like gold, physically backed ETFs are rare in agriculture due to storage and logistical constraints.

Types of Agricultural ETFs

Agricultural ETFs vary in scope, catering to different investment strategies:

• Single-Commodity ETFs: These funds focus on one crop, such as the Teucrium Corn Fund (CORN) or the Teucrium Wheat Fund (WEAT). They appeal to investors seeking targeted exposure based on individual commodity fundamentals.
• Diversified Agricultural ETFs: Funds like the Teucrium Agricultural 

How Agricultural ETFs Operate

Most agricultural ETFs track commodity prices by owning and rolling futures contracts, ensuring ongoing exposure without requiring physical delivery. However, roll yield dynamics—contango and backwardation—can impact performance, making it critical to understand the fund’s roll strategy. 

Additionally, regulatory factors such as position limits on futures contracts and CFTC oversight play a role in shaping fund behavior. Unlike traditional equity funds, agricultural ETFs must navigate constraints imposed on futures holdings, occasionally requiring funds to spread positions across multiple contract months to avoid regulatory thresholds.

Benefits and Risk Considerations

Key Potential Benefits

• Portfolio Diversification: Agricultural ETFs introduce an asset class with a historically low correlation to equities and fixed income.
• Inflation Hedge: At times, food price inflation has outpaced general CPI, reinforcing the role of agricultural commodities in protecting purchasing power. USDA
• Liquidity & Accessibility: Agricultural ETFs trade on major exchanges, allowing investors the opportunity to obtain futures price exposure through their traditional brokerage account.

Key Risks

• Market Volatility: Commodity prices are subject to extreme swings based on unpredictable factors like droughts, export bans, and geopolitical shifts.
• Futures Market Complexity: Contango and backwardation influence returns in ways unfamiliar to many traditional investors.
• Regulatory Risks: Government subsidies, tariffs, and trade policies can introduce additional uncertainty in agricultural markets.

Understanding these trade-offs can help you set appropriate expectations while optimizing your investment strategy.

Takeaway

Agricultural ETFs provide an efficient means of obtaining price exposure to global food markets. They may potentially benefit your portfolio by offering diversification, inflation hedging, and tactical trading opportunities. As investors seek to enhance their portfolios, integrating agricultural ETFs may add meaningful, uncorrelated exposure.

Important Disclosures and Risk

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. The prospectus and, if available, the summary prospectus contain this and other information about the Fund. You may obtain a prospectus and, if available, a summary prospectus by downloading the prospectus or calling "720-651-8092. Please read the prospectus or summary prospectus carefully before investing.

Important Disclosures and Risks

CORN, WEAT, and TAGS are commodity pools regulated by the Commodity Futures Trading Commission (CFTC). These Funds, which are ETPs, are not mutual funds or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and are not subject to regulation thereunder. The funds do not track the spot price of corn, sugar, soybeans or wheat.

Diversification does not ensure a profit or protect against loss.

Because the Funds will invest primarily in commodity futures contracts and other derivative instruments based on the price of the underlying commodities, an investment in the Fund will subject the investor to the risks of that commodity market, and this could result in substantial fluctuations in the price of the Fund’s shares. Futures investing is highly speculative and involves a high degree of risk. An investor may lose all or substantially all of an investment in the Fund. Investing in commodity interests subjects the Fund to the risks of its related industry.

CORN and WEAT are “non-diversified” investment companies under the Investment Company Act of 1940, as amended and, therefore, may invest a greater percentage of its assets in a particular security than a diversified fund.

An investment in the Fund involves risk, including possible loss of principal. For a complete description of the Fund’s principal investment risks, please refer to the prospectus.

PINE Distributors LLC is the distributor for the Teucrium ETFs