Chinese demand for wheat rebounded on record low prices after poor weather hurt the country’s own growing season. Likewise, Chinese soybean demand has rebounded amid the lower prices. According to the USDA, private exporters reported export sales of 120,000 metric tons of soybeans for delivery to China during the 2013-14 marketing year, while total Chinese soybean imports jumped up 23% from a year earlier to 6.93 million tons.
On the corn front, China bought a record 5.23 million tons of corn in the marketing year ending September 30. Those purchases were made at a much higher average corn price than we have now. The Chinese will undoubtedly continue to buy corn to feed their growing middle class population; long-term Chinese corn demand imports are forecast to reach 19.6 million metric tons by 2022.
Then there’s the weather to consider, as not all the major corn and soybean growing belts will produce bumper crops.
The wet spring morphed into a dry summer in key producing regions like Iowa, northern Illinois and southern Wisconsin, which will likely force lower corn and soybean yield potential. The “spotty” dryness will contribute to crop stress and some independent agriculture analysts are now revising crop forecasts lower. Field predictions for key corn grower Iowa have now been reduced from 200 bushels per acre down to just 150. An earlier fall frost could reduce figures even more.
Two ETF Plays
All in all, rising demand and potentially lower-than-predicted crops have some traders estimating that the lows for corn and soybeans may be in.
For investors, that makes the Teucrium Corn ETF (CORN) and Teucrium Soybean (SOYB) potential buys. The ETFs track a basket of three futures contracts for their respective commodities — specifically the second-to-expire, third-to-expire and the contract expiring in the December — and are the easiest and only pure ways to play rebounding futures pricing. While they haven’t been a good overall performers this year, they have seen periods of rising share prices as traders react to the wonky weather patterns we’ve had since last summer’s epic drought.
However, with the bottom potentially in for corn and soybeans as demand rises and any other weather-related headaches crop up, the pair could finally see at least some significant short term gains entering into the fall.
For those investors — or in this case, traders — looking for values, both CORN and SOYB could be a nice play for some quick gains as the market digests the grains’ bullish catalysts.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.