Agricultural Commodity ETFs

An ETF, or exchange traded fund, can be described as a bundle of various securities into one fund. When entering into this type of investment the issuer will explain the price relationships and ETF goals in a report called a prospectus that you definitely want to read. If you are using the services of a broker or investment manager they can go over the prospectus with you. The prospectus will go into detail about the goals in addition to other topics related to the fund.

A commodity is an investment product that is harvested from the earth. There are many different commodities, including livestock, precious metals, oil and corn to name just a few. Agricultural commodity ETFs deal with commodities in the agricultural industry. This would include but is not limited to wheat, corn, coffee, oranges and livestock. Anything grown and harvested by farmers would be in this category. So, an agricultural commodity ETF would be a bundle of commodities that fall under the agricultural industry. Your broker or financial investment manager can help you understand this type of ETF and help you choose the right commodities.

A commodity can go up or down in value according to many different factors. Things like weather, weather forecasts and even the financial status of a country or state can make a difference in the price of the commodity. Let’s use oranges as an example. Florida is a big producer of oranges. If you (or your broker) believed that the orange crop next season would be low due to bad weather or other factors, you would buy as much oranges as you could because if your prediction came true the commodity’s price would rise because of the rule of supply and demand.

With an ETF, you have a bundle of different commodities. You might have wheat, cattle and coffee in your bundle. Agricultural commodity ETFs are more complex than just investing in commodities because you are choosing more than one commodity and placing them together in a fund. While this can be a good way of diversifying your investments, you should also realize that a single commodity could make or break your fund’s performance if all the others stayed steady and one experienced rapid growth or loss.

As an investor you will be looking for the advantages of agricultural commodity ETFs before you decide to put your money in them. One thing traders like is that instead of purchasing a commodity or commodity futures, you can make a long or short play with your ETF on a certain agricultural material. You should choose a fund manager who is experienced in the world of agricultural commodity ETFs because like all investments there is potential for gain and loss of money.

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