A bearish USDA report projected normal estimates for corn yields this year, but with heavy rains and a late planting season, these projections are unrealistic, creating an opportunity to invest in corn, including ETFs such as the Teucrium Corn Fund (CORN).
Sensing opportunity in the flawed USDA projections, the market was quick to react. Corn prices have already rallied more than 10% off last Monday’s lows, according to SeekingAlpha.com, and as of 2:49 pm EDT the CORN ETF is up 1.89%.
The flaw in the USDA report? It assumed US corn inventories would rise to highs unseen in decades by the end of this year’s season, but it didn’t take into account the heavy rains this year that are preventing farmers from planting.
“Going forward, there’s a significant chance for a tail-risk event in U.S. corn supply, and thus much higher prices, if continued wet weather keeps farmers away from their fields in the few weeks left in the planting season,” according to SeekingAlpha.com. “Meanwhile, summer weather will provide another wildcard that could either overcome the headwinds from late planting with benign growing conditions or create a meaningful supply shortage with harsh summer weather.”
Shawn Hackett, president of Boca Raton-based Hackett Financial Advisors, told The Street that investors will likely take a wait-and-see approach throughout summer leading to a price drop.
“That pullback should give traders a far better price from which to ride the next part of the rally which should start in August when the early crop yields start to get reported,” Hackett said.
Trade War Fears
With the US/China trade war in full swing, the impact on the agriculture sector has been the talk of the town. While crops like soybeans have been hit hard, corn has been relatively immune. Over the last several years, US corn exports to China have dropped more than 90%, leaving little room for impact due to a trade war, according to SeekingAlpha.com.
For investors seeking exposure to corn without the need for a futures account, the CORN ETF has been specifically designed to mitigate the impacts of contango and backwardation. CORN lists the unpredictability of the crop as one of the reasons to invest in the fund.
“Corn supplies are highly unpredictable subject to weather, flooding, drought and crop failures with only one harvest per year,” according to the fund’s fact sheet.
If you are interested in more articles about corn investing, check out our corn category.