What’s Behind The Recent Plunge In The Teucrium Corn Fund?

cornAlthough natural resources finally turned around from a rough patch registered in the first half of 2013, soft commodities are still finding it difficult to stay afloat. This is particularly true for commodities like corn – one of the most important U.S. crops.

In fact, the Teucrium Corn Fund (CORN) has been down more than 15.7% in the past three month period, underperforming the broad agricultural commodity fund PowerShares DB Agriculture Fund (DBA) which was down by 2.1% and equity-based fund SPDR SP 500 ETF (SPY) which actually gained in the said period.

Thanks to a massive drought in 2012 which created supply crunch in the food market, CORN emerged as a star performer in the latter half of 2012. But this is just one side of the coin.

The bright scenario of last year in corn investing began to fade as the year 2013 progressed with favorable weather conditions and easing supply concerns (read: Should You Avoid These Agricultural ETFs in 2013?).

Favorable Weather for Production

The agricultural commodity market is largely a function of weather and thus subject to extreme volatility. Forecast of more rain in largest corn producing areas will likely benefit yield in the coming months thus pushing up the supply of corn and accordingly the price of the commodity. Based on this news, Corn futures fell to a three-week low.

According to the U.S. Department of Agriculture (USDA), U.S. corn production will reach a record-high level of 13.8 billion bushels in 2013 representing 28% growth from the drought-stricken last year. This, along with tepid demand suggests bearish fundamentals for corn.

Pressure on Export

Further, currently the U.S. enjoys the status of being the world’s largest corn exporter. Anemic growth in the global economy and lingering concerns over macro uncertainty has dragged down overall agricultural consumption so far this year which has hurt corn export sales.

Also Argentina, the second-largest corn exporter, positioned itself as a key exporter to world economies. As per USDA, Argentine farmers hailing from southern hemisphere get to enjoy the advantage of discovering the size of the U.S. crop beforehand and planting their crops accordingly, resulting in a fast, market-based supply response.

Hence, stiff foreign competition also lowered the prices of U.S. corn in the export market. A stronger U.S. dollar is also making exports expensive, posing another around of threat to the export. 

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