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Commodity ETFs at 52-Week High Mark Amid Russia-Ukraine Crisis

The Russia-Ukraine geopolitical tensions have put the global commodity markets on edge. Moscow has already begun attacking Ukraine and has strained its relationships with the West. Ukrainian capital, Kyiv, is being attacked and blasts have been reported even during early-morning on Feb 25. In response to Russia’s move, the United States, European Union, Australia, Japan, Taiwan and Canada have announced a new set of stricter sanctions on Russia.

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The latest developments can slowdown production activities and impact the export of commodities and goods. This is true as the tensions have led to supply disruption fears in an already-tight commodity market. A surge in prices of crude, natural gas, grains and metals has already been witnessed. The surging commodity prices can have a far-reaching impact on global economies like the United States and U.K., recovering from the pandemic-led slowdown and witnessing high inflation levels.

Let’s take a look at Russia and Ukraine’s position in the global commodity market:

Crude Oil and Natural Gas

Russia stands as the world’s second-largest oil producer. European refineries procure most of their crude oil supplies from Russia. Notably, Russia also provides about two-fifths of its natural gas supply to Europe. In fact, Russia emerged as the largest natural gas and oil supplier to the European Union in 2021.

Not only crude oil, the prolonged war between Ukraine and Russia can result in constrained supplies of edible oil. Russia and Ukraine make about three-fourths of the global sunflower oil exports.

Holding an important place in the global economy, Russia is also a major exporter of fertilizers. Production of energy-intensive products such as fertilizers can be hampered with the natural gas supply shortage. This, is turn, will impact the agricultural sector as constrained supplies will lead to soaring fertilizer prices.

Agricultural Sector

Global economies are already battling food inflation which can exacerbate with rising commodity costs amid Russia-Ukraine conflicts. According to verified sources, Russia and Ukraine are responsible for exporting at least 29% of the world’s wheat. Ukraine, on the other hand, is famously called the “breadbasket of Europe”.  Ukraine is also a large exporter of corn, rye, barley along with cooking oils.

Dawn Tiura, president at Sourcing Industry Group, has mentioned that the Middle East and African regions are also dependent on supplies of wheat and corn from Ukraine. Supply disturbances can impact food security in these regions. Dawn Tiura has also mentioned that China is among the major importers of corn from Ukraine, surpassing the United States last year.

Going on, Per Hong, senior partner at consulting firm Kearney, has also mentioned that “Rising food prices would only be exacerbated with additional price shocks, especially if core agricultural areas in Ukraine are seized by Russian loyalists,” as stated in a CNBC article.

Industrial Metals

Market analysts are also worried that the global economies might see a crunch in the supplies of industrial metals if the war lasts long because Russia and Ukraine stand out as major producers. In fact, Russia accounts for 6% of the world’s aluminum production and 7% of its mined nickel.

Russia also manages approximately 10% of the world’s copper reserves. Going by the US Geological Survey, 920,000 tonnes of refined copper was produced by Russia in 2021, making roughly 3.5% of global output. Russia is also responsible for exporting around 23% of ammonia, 17% potash, 14% of urea and 10% of phosphates.

The United States can also bear the brunt of the shortage of important industrial metals due to the ongoing conflict. According to Per Hong, “The U.S. chip industry heavily relies on Ukrainian-sourced neon and Russia also exports a number of elements critical to the manufacturing of semiconductors, jet engines, automobiles and medicine,” per a CNBC article.

Commodity ETFs at 52-Week High

There is no denying that Russia and Ukraine hold important positions as producers in the global commodities market. Thus, the escalation in tensions has sparked a rally in a broad range of commodities.

It is important to note that commodity ETFs mostly hold futures and there could be roll costs or yields involved. Therefore, these ETFs are more suitable for short-term trading or hedging activities.

Following are some commodity ETFs that are hitting a 52-week high mark as the geopolitical crisis worsens:

Teucrium Wheat Fund WEAT — up 4.9% on Feb 24

iPath Series B Bloomberg Aluminum Subindex Total Return ETNs JJU— up 3.4%

Invesco DB Base Metals Fund DBB— up 1.8%

United States Brent Oil FundLP BNO— up 1.8%

United States Gasoline Fund LP UGA— up 1.7%

iShares S&P GSCI Commodity-Indexed Trust GSG — up 1.5%

Teucrium Corn Fund CORN — up 0.7%

First Trust Global Tactical Commodity Strategy Fund FTGC — up 0.7%

Teucrium Agricultural Fund TAGS — up 0.7%

United States Commodity Index Fund (USCI) — up 0.6%

WisdomTree Enhanced Commodity Strategy Fund (GCC) — up 0.5%

iPath Series B Bloomberg Nickel Subindex Total Return ETN (JJN) — up 0.5%

United States 12 Month Natural Gas Fund LP (UNL) — up 0.5%

Invesco DB Commodity Index Tracking Fund (DBC) — up 0.4%

iPath Pure Beta Broad Commodity ETN (BCM) — up 0.3%

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United States Brent Oil ETF (BNO): ETF Research Reports
 
United States Gasoline ETF (UGA): ETF Research Reports
 
Teucrium Corn ETF (CORN): ETF Research Reports
 
Teucrium Wheat ETF (WEAT): ETF Research Reports
 
Teucrium Agricultural ETF (TAGS): ETF Research Reports
 
Invesco DB Base Metals ETF (DBB): ETF Research Reports
 
iPath Series B Bloomberg Aluminum Subindex Total Return ETN (JJU): ETF Research Reports
 
iShares S&P GSCI CommodityIndexed Trust (GSG): ETF Research Reports
 
First Trust Global Tactical Commodity Strategy ETF (FTGC): ETF Research Reports
 
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Zacks Investment Research

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