Harvesting Losses: Why Agricultural ETFs Can’t Keep Up
By: Jacob Gold
Global warming and climate change have had a significant impact on just about every industry. Farmers have always had to deal with inconsistent weather, but record-breaking heat and unexpected rainfall of today are pushing the boundaries of food production. Staple crops like wheat, corn, and soybeans are feeling the heat, quite literally, as prolonged droughts and scorching summers hammer yields. Drier conditions in the U.S. have led to more crop failures for corn growers in the Midwest, while water shortages in places like California are threatening everything from avocados to almonds. In several regions of Asia, excessive rainfall has inundated rice fields, lowering the availability of one of the most important grains in the world.
Globally, agricultural commodities and ETFs have been steadily declining as a result of the issues and volatility affecting the agriculture sector. The performance of an ETF or commodity in relation to the S&P 500 is one important indicator that the FWCC monitors. Because it encompasses a variety of businesses and reflects the larger U.S. economy, the S&P 500 is an important benchmark. In contrast to commodities, which are more erratic and impacted by supply chains, weather, and international trade, it offers steady growth. As may be seen below, this makes it helpful for evaluating market patterns.
The S&P 500 has strongly out performed agricultural commodities over the past year.
Using the Charles Schwab “ETF Screener” we observed the year long performance of four different commodity ETFs, which cover agriculture products, corn, soybeans, wheat, and sugar. The obvious spread between the S&P 500 and the next best performing ETF is more than 21.25%. However, when looking closer, almost every agricultural ETF has a negative return over the last year. The poor performance of agricultural commodities does not look to be slowing down anytime soon. This highlights the ongoing struggles within the agricultural sector, as climate-related disruptions, supply chain constraints, and shifting consumer demands continue to weigh on commodity prices. The year-long decline in agricultural ETFs suggests that while food prices may remain volatile, investor confidence in the sector has weakened, especially when compared to the broader market’s upward trajectory.
