Precious metals are once again commanding most of the limelight in the commodities complex this year, but investors shouldn’t sleep on agriculture exchange traded products, such as the Teucrium Corn Fund (CORN), Teucrium Soybean Fund (NYSEArca: SOYB) and the Teucrium Wheat Fund (NYSEArca: WEAT).
China, the world’s largest soybean importer, has pledged to raise purchases of U.S. farm goods as part of the initial trade deal. China has already bought 1 million metric tons of European Union wheat so far this season and could now look to U.S. suppliers under the new trade accord.
“The rising coronavirus infection count and death tolls have had a ‘bearish emotional impact’ on commodity prices that are most sensitive to Chinese demand, including soybeans, says Todd Hultman, lead analyst at commodity market information and analysis provider DTN,” reports Myra Saefong for Barron’s.
Corn typically trades at its cost of production and spikes during supply shocks. For example, in 2019, the USDA lowered production expectations due to unfavorable weather in the U.S. corn belt, which helped corn prices surge over 20%.
CORN Comes Calling
A growing global middle class has also raised the demand for grains both directly and indirectly, especially in the emerging markets where they shift toward greater meat consumption, which requires high grain-based animal feed. In 2018, half the world reached middle class, and by 2030, the middle class is projected to dominate the global population.
“In the meantime, there have been concerns that China may not meet its trade deal obligation to purchase $36.5 billion of U.S. agricultural commodities this year and $43.5 billion in 2021, says Dan Cekander, president of grain-market service DC Analysis, adding that he believes the coronavirus has delayed Chinese buying under the trade pact,” according to Barron’s.
However, some commodities markets observers believe soft commodities are poised to bounce back once the coronavirus issue abates, potentially bringing a buying opportunity for CORN in the process.
CORN tracks three futures contracts for corn that are traded on the Chicago Board of Trade, including 35% second to expire contracts, 30% third to expire contracts and 35% December following the third to expire. The various contract exposures help the fund limit the negative effects of rolling contracts, especially during a market in contango.
For more information on the commodities market, visit our commodity ETFs category.
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.