The World Agricultural Outlook Grinds The Teucrium Corn ETF To An All-Time Low
On Wednesday, August 12, 2015, the U.S. Department of Agriculture (USDA) released its latest “World Agricultural Supply and Demand Estimates.” The news was treated as very bearish for corn. Teucrium Corn ETF (CORN) plunged immediately on the news.
Teucrium Corn ETF (CORN) plunges to a fresh all-time low before a partial recovery closes CORN just above the previous all-time low
Source: FreeStockCharts.com
The corn season’s first “survey-based corn yield forecast” came in higher than the trend-based forecast frmo the previous month. The end result is a projection for 2015/2016 production to hit 13.7B bushels which is an increase of 156M from July’s projection. Supplies are at another record:
“Corn supplies for 2015/16 are projected at a record 15.5 billion bushels, up 154 million from last month with a small reduction in beginning stocks. Projected ending stocks for 2014/15 decline 6 million bushels with higher expected use. Increased use for sweeteners is partly offset by reductions in other categories of food and industrial use and an increase in imports…U.S. corn ending stocks for 2015/16 are projected 114 million bushels higher…Global coarse grain ending stocks for 2015/16 are raised this month with a 5.1-million-ton increase for corn mostly on higher stocks in the United States, Brazil, and Mexico.”
The USDA expects higher domestic demand given the expansion supply and resulting low prices. Global markets are expected to reduce slightly their consumption. The net increase clearly did not assure corn traders who sent prices plunging on the day.
The USDA expects a 10 cent per bushel reduction on both ends of its projected price range for the coming 2015-16 season. This makes for a 5 cent year-over-year reduction in price when measured at the midpoint. The resulting 1.3% expected drop does not seem to justify the massive sell-off in corn on the day, but commodity markets are on edge given the constant parade of bad economic news rolling out of China these days.
It turns out that my sale of my first trading position on CORN was very timely. I missed the opportunity to buy near the day’s low, but I am alert for the next opening.
Be careful out there!
Disclosure: Long CORN.
Thanks, Doc! Agricultural commodities are not something I know a lot about, but I'm very interested. To invest, whether in futures or in ETFs, do I need to be prepared to day-trade, or is there anything that works for buy-and-hold?
It is a tough space if you are not riding a trend. Currently, too many trends are downward but I wouldn't recommend shorting these ETFs or ETNs to do so. Futures are the best place for trading efficiency, but I have never dared go there. :)
So, my current compromise for CORN: 1) hold a core position in the expectation that an upward trend will get sustained someday soon that recaptures what I think is the long-term bullish outlook, 2) look for entries for short-term trades as I wrote about earlier.
Thanks for reading!