China's Demand Will Play a Major Factor in Direction of Corn Prices

China’s re-opening could have a profound impact on corn prices moving forward. The second-largest economy is sloughing off the economic effects of a resurgence in COVID cases, and bullish corn investors could stand to benefit.

“I think there’s some things on the demand side of the balance sheet we’re watching,” said Joe Vaclavik of Standard Grain, in an Ag Web article. “How much more corn does China want to buy? When you start to look at the lower corn stocks number that USDA published, pair the lower corn stocks number with the idea that USDA may now be understating corn exports if this China demand thing continues, you could be looking at a drastically lighter old crop.”

China has had its fair share of economic doldrums the past few years. A real estate development crisis and stricter regulatory measures on big tech also hampered economic growth, but demand for agricultural commodities like corn could move higher as the country regains its economic footing again.

“We [S&P Global Commodity Insights] agree 100% with Joe,” said Peter Meyer of S&P Global Commodity Insights. “If China keeps coming in here, you could have a problem with old crop. If China all of a sudden stops tomorrow, you could see the price sell off. But we’re 100% with Joe on the demand side, China’s the big gorilla in the room, so to speak.”

“It could be 2 million, it could be 5 million, it could be 7 million, we’re just really not sure,” said Meyer. “But we do think that without this sell off that we saw in late February or early March, China would not have been in the market. China is a value buyer. And they bought the value. And they did a good job of that. But the question now is, will they come back?”

Capitalize on Corn Prices

With inflation dissipating, agricultural commodities as an inflation hedge may not be the prime reason for exposure, but in terms of diversification and adding assets uncorrelated to the broad market, they still serve a place in an investor’s portfolio. Teucrium offers a variety of funds for investors looking to get agricultural commodity exposure in a convenient fashion while staying under the regulatory framework of a traditional market exchange.

Investors can also opt to invest in agricultural commodities via futures contracts. However, the time required to understand the futures market may be out of reach for investors, requiring a more convenient, uncomplicated approach.

For getting agricultural commodities exposure via corn, consider the Teucrium Corn Fund (CORN), which 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 news, information, and analysis, visit the Commodities Channel.