Agriculture ETFs Surge Following a Surprise USDA Report

Agricultural futures and ETFs surged Wednesday, as the CME Group’s farm reacted strongly to this morning’s USDA data dump.

U.S. farmers will plant lower corn and soybean acreage than the trade expected, according to the USDA.

May corn futures surged 4.64%, to move 25¢ higher to $5.64½, making an explosive move from the prior day’s roughly $5.34 lows. Meanwhile, May soybean futures rocketed 5.12%, or 70¢ higher to nearly $14.37.

Wheat and oats have also climbed more than 3.25%, as the agricultural complexes are rallying Wednesday.

Jack Scoville, PRICE Futures Group, says that the USDA released a wild report and that the uptrend has clearly returned.

“The stocks report was mostly in line with trade guesses, a little less in corn and a little bigger in wheat with soybeans dead-on guesses.  Not much there.  But the Prospective Plantings report was wild, much below trade guesses for corn, beans, and wheat,” Scoville says.

“I’m not sure why the U.S. farmer is not going fencepost to fencepost, but he was not planning to when he was surveyed.  Plus, there was a lot of prevent plant area last year that was expected to get planted this year. So, I am not sure I believe the numbers, but they are what we got and we have to ride with them.  Limit up now and probably locked up for today.  We could be higher tomorrow.  Maybe we go down a bit tomorrow, only to go higher later. The uptrend is back,” Scoville added.

Bob Linneman, Kluis Advisors, says that the trade was ironically anticipating bearish USDA numbers today.

“Corn and soybean futures slipped under key moving averages on Tuesday, which could have added to the selling pressure. Prices have slipped a reasonable amount from the recent highs. Is this slide anticipating bearish numbers from the USDA today? Have traders already discounted for some negative news that we may see today?” Linneman wrote in a daily note to customers.

Linneman added: “If the report today is within range of prereport estimates, will prices rebound? The cash markets are still strong as we continue to see basis tighten in many areas across the Midwest.”

Continuing their drop since late last month, wheat futures closed on their lows on Tuesday, amid better crop conditions in the U.S. southern Plains and Midwest, while corn and beans also fell ahead of Wednesday’s grain stocks and prospective plantings reports.

In Kansas, the biggest U.S. producer of wheat, 50% of the wheat crop was rated good or excellent as of Sunday, according to the Department of Agriculture, a 45% increase from a week earlier.

But ag markets made a surprising reversal on Wednesday.

Jason Ward, Northstar Commodity posited that investors appeared to be focused on how many acres the country will plant.

“Anything above 180.3 million acres would break the 2017 record, and no one is that low on acres. The interesting part will be the stocks estimates. It’s interesting to note, from the high to the low estimates in the corn category, there is a 407-million-bushel range. This is a substantial difference in corn supplies from high to low of a 1.500-billion-bushel carryout,” Ward says.

“The soybean range is 385 million bushels from low to high. The lowest estimate is 100 mil/bu lower than the average and the high side is 285 million bushels more. Think about that: A carryout in the U.S. forecast by USDA to be 120 million bushels, and we have trade estimates 100 mil/bu lower and 285 mil/bu higher. You can see why soybeans have been under some pressure over the past week, as traders assess the risk of a stocks report that could show significantly higher stocks.”

The news has been extremely positive for agricultural ETFs, with the Teucrium Corn Fund (CORN), Teucrium Wheat Fund (NYSEArca: WEAT), and Teucrium Soybean Fund (NYSEArca: SOYB) all gaining on Wednesday.

It should be noted, however, that futures are volatile. Agricultural ETFs may offer short-term plays for savvy investors with the proper risk profile.

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