Agricultural commodities had a smooth ride in the first four months of 2014. A weaker dollar, adverse weather and higher demand brightened the potential of the space. However, the space bucked the trend lately thanks to a favorable weather outlook and accelerated crop plantings. The latest data by USDA on monthly agricultural demand-supply report released on July 11 confirms the fact as well.
Below we have highlighted three agricultural commodity ETFs which harbor a bearish trend as of late and have retreated considerably in July. Thus, investors should keep a close eye on these ETFs, which might continue to plunge if things remain against this space in the near term:
Teucrium Corn ETF (CORN)
Among the bunch, corn futures appear to be hard hit. Notably, corn is one of the most important U.S. crops. Favorable weather conditions and upbeat harvest outlook basically led U.S. corn futures to dire trading (read: Corn ETF Continues Plunge).
At the present level, corn inventories have also been hovering at a very high level. Domestic corn reserves will tally around 1.801 billion bushels on August 31, 2015, higher than 1.726 billion bushels predicted in June.
Global stockpiles should hit 188.05 million tons before the 2015 harvest season starts, up from 173.42 million projected for year 2014 and the maximum since 2000, as per the latest data by USDA.
As per USDA, as much as 76% of the corn crop is considered to be in good condition thus posing a threat to future price performance. All these have pushed the corn futures down to the four-year low level. As a result, CORN – a fund that provides investors direct exposure to the corn commodity plunged about 13.2% this July. CORN slid 2.25% on the day that USDA came out with the latest data.
Teucrium Soybean Fund (SOYB)
Soybeans also feel the same pressure. Favorable weather forecasts would support soybean planting given that ample rain is expected across the key U.S. soybean growing areas. USDA estimated a higher-than-expected crop and inventory for 2014.
A slowdown in China, the biggest importer of the staple crop, might play a role in curtailing demand for soybeans. Clearly, the supply glut and possible lower demand scenario have hurt soybean futures and the ETFs saw a massive price decline this month (read: Stumbling Start to June for Agricultural Commodity ETFs).
Soybean prices have fallen for 11 consecutive days, the most prolonged fall since at least May 1970. SOYB – an ETF option for the soybean market – lost about 11.1% this July. SOYB was down 1.49% on July 11.
Teucrium Wheat Fund (WEAT)
The next blow comes to the wheat space. Wheat prices witnessed numerous helping factors in the early part of the year thanks to the crisis in Ukraine (one of the largest exporters of wheat) and negative U.S. production outlook (read: Wheat ETF Surging on Ukraine Issues, Weather Outlook).
But things snapped the trend in the past three months after heavy showers in wheat growing areas such as western Nebraska, northeast Colorado, eastern Kansas and eastern Oklahoma increased the harvest potential and dampened the pricing outlook. Global supplies also remained steady. Wheat harvest in the European Union (EU) is expected to be the highest since 2008, further adding to the bear case.
The latest USDA data indicates that global wheat stockpiles would grow to 189.54 million metric tons by 2014–15 season end, higher than the U.S. Department of Agriculture’s forecast last month. USDA now believes that strong plantings in spring will outweigh a subdued crop in the winter.
To reflect the trend, wheat futures for July delivery declined 4.1% a bushel in Chicago representing the weakest closing price in over four years. WEAT – a fund providing exposure to the wheat market – was down 3.58% on July 11. This month, WEAT fell about 10.3%.
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