April 24, 2012
By Scott Martin
The corn chart looks eager for a short-term bounce, but the longer trend looks bearish as U.S. farmers dedicate more acreage to the crop than ever, creating a glut that neither ethanol production nor an Argentine drought can overcome. Last week’s crop report confirmed what commodity traders have been saying for weeks: there is going to be too much corn come harvest time to support current prices, no matter how much Chinese demand ends up taking off the market.
Argentina is still suffering from significant drought conditions, but the USDA estimates that the weather there will end up trimming only 500,000 tons of corn from the second-largest exporter’s harvest this year.
As a result, corn prices have sunk 21% over the last 12 months, taking the Teucrium ETF (CORN) with them and acting as a drag on broader-based agricultural ETFs like DBA.
The corn bulls point to China as a buyer of last resort, but while it can be fun to think about the world’s second-biggest economy having a theoretically bottomless appetite for raw materials, the truth is very different.
Monday, April 30, 2012