Prices of U.S. soybean futures have been on a tear lately and increased to their highest levels since 2018 after the U.S. Department of Agriculture said that China bought 664,000 tons, the largest daily total since Jul 22, as quoted on CNBC. China’s move ensures the success of the phase-one trade deal.
The trade deal put stress on agricultural purchases.Per the agreement, China vowed to buy $12.5 billion of American agricultural goods in 2020 and another $19.5 billion in 2021. Per CNBC, agriculture purchases included soybeans, wheat, corn, cotton, flour, honey and swine meat.
Notably, China purchases about half of the soybean produced in the United States and is the second-largest buyer of American cotton. At the start of the trade war, agricultural products like yellow and black soybean faced a 25% retaliatory tariff from China.
The CNBC article noted that global soybean demand has been robust recently, with new American crop sales at record levels, said Jim Sutter, CEO of the U.S. Soybean Export Council. An uptick in seasonal demand led China to actively buy soybeans at this time of the year. Not only soybean, China’s demand for corn is also surging.
"U.S. storm damage and Chinese demand are supporting corn prices," said Phin Ziebell, an agribusiness economist at National Australia Bank in Melbourne, as quoted on agriculture.com.China's corn and soybean requirement to feed animals has also risen “as its pig herd has rebounded more quickly than expected from a deadly swine disease.”
A report released Sep 11, showed that export sales of soybeans to China totaled 1.608 million tons in the week ended Sep 3. Weekly corn export sales to China were 1.137 million tons. Traders expect the U.S. government to boost its export forecast for both commodities to reflect the spike in deal activity. On the production front too, the outlook is bullish. The U.S. Department of Agriculture (USDA) said in a monthly report that U.S. corn and soybean production would be lower than previously forecast because of unfavorable weather last month.
ETFs in Focus
Against this backdrop, investors can bet on the above-said agricultural ETFs as long as the trend is a friend (read: Tap These ETFs to Play the Strong Momentum in Grains).
Teucrium Soybean ETF (SOYB - Free Report)
This underlying index looks to reflect the daily changes of a weighted average of the closing prices for three futures contracts for soybeans that are traded on the CBOT. The three contracts will be: 2nd-to-expire contract, 3rd-to-expire contract and the contract expiring in the November, following the expiration month of the 3rd-to-expire contract. The expense ratio of the product is 3.15%.
Teucrium Corn Fund (CORN - Free Report)
The CBOT Corn Futures Contract looks to reflect the daily changes of a weighted average of the closing prices for three futures contracts for corn that are traded on the CBOT. The expense ratio of the product is 3.12%.
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