The world’s second largest economy has still much to do in order to get its economic house in order. Still, there were some encouraging signs for China heading into the second quarter of 2024. That, in turn, could increase demand for soybeans and push prices higher.
According to the United Soybean Board, China is the primary destination of soybean exports from the United States, making its consumption a key mover for bullish soybean prices. While the country continues to implement measures to stimulate growth following a real estate development crisis in 2021, economic data could be showing signs that a bottom may have been reached.
More recently, a Wall Street Journal report noted that the economy may be picking up, starting with the “official factory purchasing managers index in March moving back above the 50-point level separating expansion from contraction for the first time since September.” A reading above a 50 typically notes that expansion is taking place. The report also noted that the services sector index reached a high not seen since June, adding to the potential comeback as the Chinese government adds measured stimulus policies in order to prop up growth.
As mentioned, China’s economic improvement will be essential for soybean prices to trend in an upward direction. Likewise, U.S. exports for agricultural goods like soybeans will also benefit.
“U.S. agricultural exports to China in fiscal year 2022 reached a record $36.4 billion before trending downward as the Chinese economy slowed, according to the U.S. Department of Agriculture’s Foreign Agricultural Service,” reported the High Plains Journal.
If China can pull itself out of its economic doldrums and demand for soybeans picks up, then investors may consider the Teucrium Soybean Fund (SOYB). The fund provides similar exposure to what investors could obtain by trading in soybean futures contracts. SOYB is also an option for longer-term buy-and-hold investors who want to diversify their current portfolios with commodities exposure. Additionally, if short-term traders want to take advantage of upside in soybean prices, SOYB can serve that purpose as well.
USDA Report Lifts Corn
Corn could also be heading higher after an encouraging USDA Prospective Plantings and quarterly Grain Stocks reports. China is also a top consumer of corn, so an economic revival will also be a bullish catalyst for prices.
“USDA said that plantings should be just 90 million acres and that inventories are estimated at 8.347 billion bushels,” said Jack Scoville with Price Futures Group. “The planting intentions report was especially bullish for corn prices.”
If corn prices push higher, investors, short-term and long-term, can consider the Teucrium Corn Fund (CORN). The fund tracks three futures contracts for corn traded on the Chicago Board of Trade. It includes 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.
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