Investing

Commodities Watch: New Ag ETFs Coming; Crude Oil Pipeline to Gulf Coast Also Planned; Rare Earths Miner Files Shelf Registration (CORN, DBA, EPD, ETP, TRP, COP, AVL, MCP, REE)

Today’s commodities news highlights an SEC filing for a new agricultural ETF, a proposed pipeline that would send crude oil to the US Gulf coast, and a $500 million shelf registration from a US rare earths miner.

Teucrium Commodity Trust has filed a preliminary Form S-1 with the US SEC for a new agriculture ETF to be called the Teucrium Agricultural Fund, which would be listed on the NYSE under the symbol ‘TAGS’. The new fund’s objective is to track the daily changes in the net asset values of four Teucrium-sponsored ag funds, including the Teucrium Corn Fund (NYSE: CORN). The proposed fund, really a fund-of-funds, would also include changes to three funds that Teucrium has not yet launched: the Teucrium Wheat Fund; the Teucrium Soybean Fund; and the Teucrium Sugar Fund. Proposed symbols for the three are ‘WEAT’, ‘SOYB’, and ‘CANE’, respectively.

The proposed fund would be rebalanced as often as every day, and unlike many other commodity ETFs that include mostly next-to-expire contracts, the fund will follow a different scheme. Teucrium’s corn fund has no exposure to spot month contracts and neither will any of the other three single commodity funds.

The new single commodity funds would follow the example of the corn fund, holding 35% of second-to-expire contracts, 30% of third-to-expire contracts, and 35% of the following December contracts. Thus, an April investor would own June, July, and December futures. The intent of the scheme is to smooth but the effects of either backwardation or contango on investor returns.

Unlike the PowerShares DB Agriculture Fund (NYSE: DBA), the proposed fund is far more targeted, eliminating exposure to cattle, cocoa, coffee, cotton, and other commodities. The new Teucrium fund would also be the first ETF to give investors exposure to commodities through a fund-of-funds, or ETF-of-ETFs, structure.

No launch dates for the three commodity-specific funds or the new ag fund have been announced.

A contributing factor to high US oil prices has been the absence of a crude oil pipeline to move crude from the storage/pricing hub at Cushing, Oklahoma, to the US Gulf coast, where so much of US refining capacity exists. Two major pipeline companies, Enterprise Products Partners, L.P. (NYSE: EPD) and Energy Transfer Partners, L.P. (NYSE: ETP) have announced plans to build a 400,000 barrel/day piple from Cushing to Houston.

Such a pipeline is also a key part of the Keystone XL pipeline proposed by TransCanada Corp. (NYSE: TRP) and currently awaiting approval from the US State Department. ConocoPhillips Corp. (NYSE: COP) owns the Seaway pipeline which transport crude from the Gulf coast to Cushing, but has rejected the idea of reversing the pipeline’s flow.

The ability to move crude by pipeline to the Gulf coast will send lower cost WTI crude to US refineries now paying Brent crude prices for the mostly seaborne crude now being refined. This should help re-balance the current $10-$15/barrel spread now favoring Brent crude.

TransCanada’s current Keystone pipeline transports about 1 million barrels/day of Canadian crude to Cushing, so even if both pipelines were built, there is enough crude to make both commercially successful.

Finally today, rare earths miner Avalon Rare Metals, Inc. (AMEX: AVL) has filed a $500 million shelf registration with the US SEC. Avalon trails Molycorp, Inc. (NYSE: MCP) in both expected time to production and market cap. Rare Element Resources Ltd. (NYSE: REE) is even further behind, but if there is room for another producer outside China, it’s probably got a chance.

Avalon’s plan could take five years before it makes any sales, and its development costs could top $1 billion. The only question about this $500 million registration is whether or not it will be enough to do the job.

Paul Ausick