Why is the Agricultural Products Fund Wilting Alone?

Price Adjustment Amid Increased Supply Due to Good Crop Conditions
3-Month Yield Stands at 1.17%

[Asia Economy Reporter Minji Lee] Since the resumption of economic activities worldwide following the outbreak of the novel coronavirus infection (COVID-19), commodity fund returns have been soaring, but agricultural commodity funds have been the only ones struggling. This is largely due to price adjustments caused by a significant increase in supply thanks to favorable crop yields.

According to financial information provider FnGuide on the 13th, the recent 3-month return of nine agricultural commodity funds set up domestically was recorded at 1.77% as of the previous day. On a 1-month basis, it recorded -2.5%, which is the lowest return among 44 categorized thematic funds.

Agricultural commodities, along with precious metals (gold, silver), industrial metals (copper, nickel), and natural resources, represent the commodity market. Although they are all commodities, their returns have shown different trends. Over the past three months, gold funds posted a 19.7% return, and commodity funds achieved a 37.7% return. Natural resource funds also recorded 41.7%, suggesting that investors who joined these funds in May likely earned higher returns than domestic equity funds (28.7%).

The low returns of agricultural commodity funds indicate that prices of major US-produced crops such as soybeans, corn, wheat, and barley have fallen. With a significant increase in supply due to favorable crop yields and low price elasticity of demand, returns have sharply declined. There is also no impact from economic changes, so even with the resumption of economic activities, demand remains largely unchanged.

On the other hand, when prices of other commodities plunge, the desire to buy at low prices increases. These commodities are also more closely related to economic activities. Industrial metal and energy-related funds plummeted to -18% and -58%, respectively, as of March 20 due to the COVID-19 impact, but their returns quickly recovered as demand surged with the reopening of major economies. Gold and silver attracted attention as hedging (risk-averse) assets amid rising expected inflation due to falling real interest rates, resulting in significant gains.

Looking at individual stocks, funds that included other commodities such as copper and gold showed favorable returns. The 'Mirae Asset Rogers Commodity Index Special Asset Private Investment Trust,' which posted a 19.9% return over the past three months, holds assets including 'TIGER Copper Physical,' energy, and mining products. Following this were 'Kiwoom Commodity Index Plus Special Asset Private Investment Trust (18.4%)' and 'Multi-Asset Jim Rogers Agri Index Securities Private Investment Trust (18.3%),' which also include gold futures and short-term bond-related assets.

Conversely, the 'Samsung KODEX 3 Major Agricultural Commodity Futures Special Asset Listed Index Investment Trust (ETF),' which tracks an index based on prices of corn, wheat, and soybeans calculated by S&P, recorded the lowest return at -3.6%. The 'Mirae Asset TIGER Agricultural Commodity Futures Special Asset Listed Index Investment Trust,' which tracks an index based on prices of corn, wheat, soybeans, and sugar, showed a return of -0.75%. It is analyzed that the slight recent rebound in the currency (Real) of Brazil, the largest sugar producer, helped defend the returns.

In the securities industry, it is anticipated that for agricultural commodity fund returns to rise, supply must be stimulated or a long-term weak dollar environment must be maintained. Although the dollar is currently weak, considering the previous trend of dollar strength, further declines are necessary for US agricultural products to gain price competitiveness. Hwang Byung-jin, a researcher at NH Investment & Securities, explained, "The factor that can stimulate supply is weather variables, and the US crop boom is expected to continue for the time being. However, abnormal weather is expected early next year, which is anticipated to drive prices up."

This content was produced with the assistance of AI translation services.