Corn Pauses; More Upside to be Had? (CORN)
Corn futures are down for a second straight day and the Teucrium Corn Fund (NYSE: CORN) is up "just" 0.6 percent as of this writing. It is possible that corn is experiencing a scenario previously seen in the oil pits: demand erosion at the hands of high prices.
Time will tell if that is really the case and it is fair to say the Teucrium Corn Fund's lethargic performance today means nothing when noting the fund has jumped more than 34 percent in the past month. That rapid increase has helped CORN gain entry to the prestigious $100 million in assets under management club, according to data provided by WallachBeth Capital.
"According to Accuweather.com, the corn yield could drop to as low as 138 bushels per acre. One month prior the USDA had forecast 166 bushels per acre. According to UBS a yield below 140 bushels could push the price above $9 a bushel," WallachBeth's Chris Hempstead said in a note. Hempstead is the New York-based firm's director of ETF execution services.
Hempstead notes the U.S. Department of Agricultre has reported that almost 40% of this year's corn crop is in poor condition, nearly quadruple the levels seen a year ago at this time.
As noted, the drought that has lifted corn futures and in turn CORN has boosted other exchange-traded products as well.
SOYB tracks three soybean futures contracts that are as follows: (1) second-to-expire CBOT Soybean Futures Contract, weighted 35 percent, (2) the third-to-expire CBOT Soybean Futures Contract, weighted 30 percent, and (3) the CBOT Soybean Futures Contract expiring in the November following the expiration month of the third-to-expire contract, weighted 35 percent, according to Teucrium. WEAT does the same thing with weat futures.
"Everything from feeder cattle to corn and soybeans are feeling the impact in a big way. Not only is the drought having an impact on the crops, the demand for grains is increasing as China is projected to have a bigger appetite," said Hempstead.
Without much fanfare, the ELEMENTS Rogers International Commodity Agriculture ETN (NYSE: RJA) is also benefitting in a big way from corn's surge. RJA, which has almost $399 million in assets under management, has jumped 20 percent in the past month. Corn, Chicago-traded wheat and soybeans combine for almost 37 percent of RJA's weight.
Even if rain does make its way to the Midwest, it would be a case of too little-too late as significant damage has already been done to the U.S. corn crop. This would indicate that higher may be the path of least resistance for corn futures and some of the exchange-traded products mentioned here.
"With grain prices on the rise and water scarce, cattle farmers are increasingly culling their herds as the increasing costs are too much to absorb, driving feeder cattle prices lower," said Hempstead. "While insurance should be a nice safety net for many (USDA expected to underwrite billions in claims-crop insurance companies anyone?), the recovery of the stocks and inventories could be a concern going forward."
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