If there was any time for Teucrium Corn (NYSEARCA:CORN) to finally bounce, Monday (August 12, 2013) was it. The United States Department of Agriculture (USDA) announced its projection for record corn production this year:
"U.S. corn growers are expected to produce a record-high 13.8 billion bushels of corn in 2013, according to the Crop Production report issued today by the U.S. Department of Agriculture's National Agricultural Statistics Service (NASS). The forecast production is up 28 percent from drought-hit 2012…with 64 percent of U.S. corn crop rated in good to excellent condition as of August 4, corn crop condition remains significantly higher than at this time last year. Based on these conditions, NASS forecasts this year's corn yield at 154.4 bushels per acre, the third-highest yield on record."
The market responded by sending corn prices higher on the day. CORN bounced off its all-time lows:
CORN reacts to latest USDA report with a bounce from all-time lows
When I last wrote about corn production on July 1, 2013, I made the case for buying CORN as soon as some upside momentum appeared. A brief spurt the following week could not even break the declining 20-day moving average (DMA) and CORN has continued declined since then. I did not quite take my own advice and bought before this downward momentum showed convincing signs of potentially ending. However, if seasonal patterns finally kick in, then my original premise for a contrarian/counter-rally implies that CORN has indeed finally bottomed here.
While high prices last year motivated a strong planting season, and weather this year eventually cooperated to complete planting of 97.4 million acres by mid-June, low prices now should prevent supply from exploding even further next year. The bounce on Monday could be the early signal for a rebound in prices.
My interest in these kinds of commodity cycles was born out of my development of a Commodity Crash Playbook in 2011 based largely on the ideas of Jeremy Grantham. Part of the playbook looks to buy commodities at key points in major declines and wait out a subsequent rally as fundamentals play out to eventually drive prices higher. A big thing I did not anticipate at that time was how the unfolding crash in commodities would come in disparate waves or that the core catalyst, an economic crash in China, would take so long in arriving (this past Sunday, 60 Minutes added its two-cents to on China's massive real estate bubble, featuring entire cities with no one living in them. See: "China's real estate bubble").
At the time I was less willing to make bets in agriculture because I thought Grantham was overly reliant on weather forecasting in his modeling. The recent collapse in potash prices has reinforced my interest in agriculture that reignited with this decline in corn prices. I know there is an active and knowledgeable crowd out there in the farm and agricultural space, so I am eager to hear your feedback and opinions.
Be careful out there!