Agriculture exchange traded funds have been hit by decreasing prices for soybeans, corn and wheat as well as a stronger U.S. dollar. Increased supply and weaker demand for these three essential commodities have led to significant price drops, with the price of soybeans down almost 13% and wheat falling nearly 12% year to date.
ELEMENTS Rogers International Commodity Agriculture ETN (NYSEArca: RJA), which tracks corn, wheat and soybeans, is down 15% so far in 2011. PowerShares DB Agriculture ETF (NYSEArca: DBA) and iPath Dow Jones AIG-Agriculture ETN (NYSEArca: JJA), which also track these three commodities, are down 7% and 14%, respectively.
“Soybean prices may be poised to extend declines as supply increases from South America and demand growth may slow from China, the largest consumer,” Bloomberg reported. According to James Zhou, director of trading at Cargill Investment Ltd., soybean prices have “room to fall.”
Corn and wheat face similar declines as lower demand for corn as animal feed and an overproduction of wheat threaten prices. The USDA expects U.S. corn exports to be at a nine year low of 1.6 billion bushels, while excess supply of wheat from Russia, Canada, and Australia have resulted in plummeting prices, Commerzbank AG said.
Outside factors including the European debt situation have also contributed to declining commodity prices. Economist Matt Roberts stated such external forces have been more influential than grain market fundamentals over the past few weeks. However, with the year coming to a close, Roberts predicts grain markets will begin to look at 2012 supply needs.
Furthermore, production forecasts for 2012 released by the USDA indicate prices for these three grains may continue to fall. Low exports and reduced demand for livestock feed are some of the biggest factors affecting the price of corn next year, while the outlook for soybeans and wheat may also be hindered by bigger yields and lower exports.