Volatile weather conditions across the U.S.Midwest are disrupting the normal planting season and supporting a rebound in soft commodities related exchange traded funds.
Grains have fallen off this year as ample supply has kept pressure on agricultural commodities. Year-to-date, Teucrium Corn Fund (NYSEArca: CORN) fell 12.3%, Teucrium Soybean Fund (NYSEArca: SOYB) declined 6.5% and Teucrium Wheat Fund (NYSEArca: WEAT) dropped 16.3%.
However, the soft commodities have rebounded over the past week, bouncing above their short-term 50-day trend line and shooting toward their long-term resistance. Over the past week, the CORN was 5.6% higher, SOYB was up 3.1% and WEAT advanced 7.7%.
Agricultural commodities prices were strengthening on fears that storms in the grain belt would diminish supply, reports Gregory Meyer for the Financial Times.
The U.S. Department of Agriculture will give its official survey of farmers’ planting plans on Tuesday. Analysts previously anticipated that farmers would plant record acres of soybeans and corn, the two most widely observed crops in the U.S., but more observers are having doubts as summer storms and damaging winds lash the Midwest.
For instance, winds across Iowa and Illinois knocked over young corn stalks in “garden spot areas, potentially the best-yielding areas, and the market is taking notice,” Mike Zuzolo, president of Global Commodity Analytics said in the FT article. “Because soils are so saturated, hail and wind exacerbate an already bad problem for producers.”
The wet conditions have also slowed harvest of U.S. winter wheat, which has fueled concerns that moisture could have damaged teh quality of grains.
Moreover, the heavy rains have impeded barges going along the Illinois river, the official delivery point for corn and soybean futures. The CME Group has already enacted measures to allow traders to delay deliveries until the river abates.
Chris Kimble of Kimble Charting Solutions also pointed to a potentially bullish breakout of a wedge formation in WEAT’s chart. The wedge formation depicts a price pattern where the trend lines drawn above and below a price chart converge into an arrow shape. Once the security breaks out of the wedge, technical analysts believe it foreshadows a return to a major trend, or at least a short- to intermediate-term trend reversal.
Moreover, Kimble looked at the long-term charts of the iPath Dow Jones-UBS Grains Subindex Total Return ETN (NYSEArca: JJG) and saw a long-term support in play. JJG is bouncing off a long-term support, or price level that that has been historically difficult to break under, going back eight years.
iPath Dow Jones-UBS Grains Subindex Total Return ETN
For more information on the commodities market, visit our commodity ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.