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As CORN Surges, COW Disappoints


Livestock ETNs continue to underperform even as corn funds prosper.

One of the most talked about exchange-traded products over the past several weeks has been the Teucrium Corn Fund (CORN) and with good reason. The Teucrium Corn Fund, which tracks a basket of Chicago Board of Trade corn futures contracts across three expirations, was a $36 fund in late June. CORN was found flirting with $46 at Tuesday's close.

Thanks to drought-like conditions across many of the major corn-producing states, the U.S. corn crop has been ravaged and prices of the commodity have surged. That dire situation has been anything but glum for CORN, which has jumped 25 percent since June 12.

A stellar performance to be sure and one that serves to highlight one of the more disappointing derivative trades on corn prices on CORN: Livestock ETNs. As has been previously noted, the iPath DJ-UBS Livestock TR Sub-Index ETN (COW) has a track record of disappointment.

It appears that old habits die hard because COW, which allocates about 61 percent of its weight to live cattle futures contracts and the remainder and to lean hogs futures contracts, is off 1.5 percent in the past month.

In theory, COW should be a valid play on rising corn prices, because feed for cattle and hogs is usually corn-based. Higher feed prices for farmers should lead to higher prices for buyers of burgers, steak and pork chops. In reality, COW's one-month performance is the continuation of the ETN's tradition of disappointment.

COW was also previously touted as the way to play rising consumption of higher quality meat in emerging markets. That theme has not worked in COW's favor either as the ETN is down 43 percent in the past five years.

In fairness to COW, these kind of disappointments are not new. And to continue being fair, it should be noted COW is not the only livestock ETN offender.

The $1.25 million iPath Pure Beta Livestock ETN (LSTK), which tracks the Barclays Capital Commodity Index Livestock Pure Beta TR Index, would appear to be another way of riding CORN's coattails. However, in the past month, the iPath Pure Beta Livestock ETN has done a whole lot of nothing. Literally. LSTK has not traded since June 15.

For those that are looking for some glimmer of help from the world of livestock ETNs, the UBS E-TRACS CMCI Livestock TR ETN (UBC), might be the play. UBC is up almost 3.4 percent in the past month, but that performance needs to be taken with a grain of salt.

Not only is UBC trailing CORN by over 2,100 basis points, the former has not traded since July 9. UBC, which is 58.3 percent-weighted to live cattle contracts with the rest going to lean hogs, charges fees of 0.65 percent per year accrued on a daily basis. In other words, the price to dance with UBC is so high it is just another livestock ETN with the potential to leave investors with a sour taste in their mouths.

Those that want to play corn's ascent should stick with the basics and that means sticking with CORN.

Editor's Note: This content was originally published on by The ETF Professor.

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