Although ‘soft’ commodities saw pretty sluggish trading last year, the scenario turned around for a basket of agricultural commodities to start 2014. Along with commodities like cocoa, coffee, wheat and sugar, this bullish trend also holds well for Corn– one of the most important U.S. crops and key food staples worldwide.
The grains suffered as much as 40% in 2013 thanks to an oversupply scenario. This was the steepest decline in corn since 1960. As one can guess, this massive fall undervalued the grain, offering some scope for outperformance this year. The ETF based on this crop – Teucrium Corn ETF (NYSEARCA:CORN) – added more than 6% year to date and is likely to add more gains in the coming weeks too.
Reason Behind the Bullishness
There are several reasons behind this bullishness. Corn rallied to its highest level since September last year, as tensions flared up in Ukraine, which is a leading exporter of a competing grain, wheat. The Russia-Ukraine strife played its role in driving corn prices this year. Since the tensions have not yet cooled down, we can expect some more gains out of this grain in the sessions ahead.
Also, as per the U.S. Grains Council, corn prices are on the rise in Ukraine as farmers are pulling back sales, holding grain as a hedge against the country’s weakening currency. As exports from Odessa and other Black Sea ports carry on with vessels being stacked, increased prices may soften future sales.
The surging livestock industry is also boosting the demand for corn as it is used as feed. Also, as per the Bank of America Merrill Lynch analyst, the corn acreage in 2014 will be less than 2013 planting as acres are shifting from corn towards soybeans.
Inclement weather conditions in Argentina – another top producer of grains— could eat up acreage and transfer it to soybeans until the planting season ends in January. Planting is expected to be lower even in the Northern Hemisphere this season (read: Corn ETF Surges on Surprise Harvest Estimate Cut).
Although many analysts including some from Bank of America Merrill Lynch raised some concerns regarding price appreciation in the grain, we expect a growing global economy and some reduced production in many regions to support the price of corn this year. Thus, a look at the top-ranked corn ETF could be a good way to target the potential price rise in the commodity.