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New Corn ETF Faces Regulatory Headwinds

NEW YORK ( TheStreet) - One of the more talked about ETF filings over the past month has been a corn-focused ETF proposed by Teucrium Trading, an investment firm based in Brattleboro, VT.

The Teucrium Corn Fund will trade under the symbol CORN and track the performance of corn prices using a unique weighting technique that utilizes CBOT futures contracts as well as swaps. 35% of the fund's basket will be invested in second-to-expire contract, 30% of the fund will be weighted in the third-to-expire contract and the remaining 35% of the fund will be in the Dec. contract that follows the expiration of the third-to-expire contract.

The fund is expected to have a 1% expense ratio.

CORN will provide U.S. investors with their first pure play opportunity on corn. In Europe, ETF Securities, the company responsible for the popular ETFS Physical Platinum Shares (PPLT) and the ETFS Physical Palladium Shares (PALL), has offered funds to fill this niche for years. Today, using this company's products, foreign investors can take long, short or leveraged bets on the performance of the crop.

Prior to the introduction of CORN, U.S. investors looking for access to any single grain had been forced to settle for broader ETFs such as PowerShares DB Agriculture (DBA) or ETNs such as the iPath Dow Jones-UBS Grains Total Return Subindex ETN (JJG). DBA tracks an index of several agricultural products, with only 12.5% in corn; JJG tracks an equal weighted basket of corn, wheat and soybean futures contracts.

While the corn fund will provide investors with what may be an interesting new investing opportunity, the timing of the fund could not be worse. Right now, with regulatory bodies taking aim at commodities ETFs and derivative-backed ETFs, CORN could face some formidable roadblocks before entering the market.

Over the past month, I have been following the ongoing regulatory firestorm that has faced the ETF arena. Right now, both the Securities and Exchange Commission and the Commodities Futures Trading Commission have taken aim at certain aspects of the exchange-traded fund arena in hopes of reining in products they deem dangerous to the retail investor.

In an effort to prevent futures-backed ETFs from becoming so large that they distort the market, the CFTC is mulling the possibility of employing stricter position limits on funds designed to track the performance of "finite" commodities.
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