2024-07-25 15:14:31 ET
Summary
- July WASDE report showed increasing corn usage outpacing supplies, leading to short covering in corn and soybean markets.
- Grains lag commodities asset class, soft commodities lead with animal proteins posting gains.
- DBA ETF offers diversified exposure to agricultural commodities, reflecting global trade dynamics and weather patterns.
On Friday, July 12, the USDA released its July World Agricultural Supply and Demand Estimates report, the gold standard for fundamental supply and demand data in the agricultural futures markets. I reached out to Sal Gilberte, the founder of the Teucrium Family of agricultural ETFs, including the CORN, SOYB, WEAT, and CANE ETFs that track portfolios of actively traded CBOT corn, soybean, wheat, and ICE sugar futures. Sal told me:
The July WASDE report adjusted the U.S. corn balance sheet to show the rate of increasing corn usage rising faster than the rate of increasing corn supplies, which was enough to motivate short covering in both corn and soybean markets. To be sure, there are currently very healthy levels of corn and soybean supplies, and at this time the vast majority of field crops are in good shape, which is why corn and soybean prices are at multi-year lows approaching their actual cost of production. Given the fact that corn prices are nearing their historical (since 2007) futures equivalent cost-of-production prices lows of between $3.50 and $4.00 per bushel, and that corn crops in the U.S. are right now entering the critical pollination stage when the risk of weather related damage is high (potentially caused by dryness, heat, and nighttime temperatures holding above 75 degrees for too many consecutive nights), it’s no surprise that traders are flattening short positions at this time. From both a seasonal risk and a price perspective, the risk/reward of carrying short positions in corn seems too high for comfort. Long-term traders willing to assume some risk-on positions are no doubt looking to buy dips from this point onwards, which all eyes on the weather the next 4-6 weeks across the corn belt.
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DBA: The Commodities That Feed And Increasingly Power The World