March 31, 2008 at 10:00 am by Tom Lydon
Corn isn’t about to get cheaper anytime soon, and while it might hurt your grocery bills, it could benefit exchange traded funds (ETFs) that hold futures for the commodity.
Farmers are expected to plant less corn this year, meaning that rising prices could only go higher, reports Mary Clare Jalonick for the Associated Press. The effects of less corn to go around will hurt more than just grocery bills: high prices also hit poultry, beef and pork companies, which use corn to feed their animals.
This year, 86 million acres of corn are expect to be planted, down 8% from last year. Corn planting will still remain at historically high levels, but may go down slightly this year because it’s expensive to grow and prices are better for other crops, such as soybeans. In fact, soybean planting is expected to rise by 18% this year.
To get exposure to corn and soybean futures, check out PowerShares DB Agriculture (DBA), up 13.7% year-to-date. It also holds futures for wheat and sugar.
Tags: Agriculture, Corn, DBA, Wheat
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March 31st, 2008 at 1:43 pm
I sold my positions in DBA today after the annual crop report. Yes, corn acreage is expected to fall, giving
prices for corn a pop, but at the expense of both wheat & suybeans (wheat & soybean acreage is expected to increase). With this information coupled with wheat/soybean positions being @ 57% of DBA (vs. @ 15% in corn), now is not the time to be buying DBA; wait until the futures markets settles down after digesting this news. Next major support @ $34.
April 1st, 2008 at 12:17 pm
Why do you not cite JJG (because it’s an ETN?), which is steady on subset grains from its momma JJA broad Ag?
April 1st, 2008 at 12:23 pm
Do you suspect that perceptions from USDA projections of U S corn planting will hit MOO (MO for hybrids and DE for harvesters)?
Remember Keynes dicta: The trick in betting on “beauty contests” (aphorism for speculation) is not picking the one you find most beautiful, but the one you think the judges will find most beautiful. That’s sort of fitting for ETNs (and most ETFs).
April 2nd, 2008 at 10:41 am
Hi Richard,
We’ve taken into account trading volume and assets held when it comes to DBA and MOO (JJG has $101 million; DBA and MOO have $2.7 and $1.5 billion). JJG and other agriculture funds are still viable opportunities for investors, though!
As for perceptions affecting MOO, anything is possible. We report what’s happening in the news because sooner or later, those events could have an effect on ETFs, positive or negative. But one can never predict for certain.
Thanks for reading!