Chinese Demand Could Help Soybean, Corn Prices Stay Afloat

As the second largest economy continues to struggle from the aftermath of a real estate development crisis, China’s demand for agricultural commodities should help keep soybean and corn prices afloat.

The U.S. soybean market, in particular, could see increased soybean demand from China. This comes after an executive order by Brazil President Luiz Inacio Lula da Silva limited the ability of the country’s commodity exporters to take advantage of tax credits. In turn, this could force Brazil to push soybean prices higher, and China, riddled with its current economic struggles, could lean on the U.S. to stymie the effect of higher prices.

“A surprise tax change in Brazil, the world’s largest soybean exporter, is prompting Chinese buyers to snatch up US supplies,” reported Bloomberg.

Likewise, the executive order could affect where China seeks corn. Argentina could be a prime source of corn as the two nations are expanding its agricultural trade transactions — a first in many years.

“Argentina is preparing corn shipments to China that will be the first in 15 years, the latest move by the two countries to expand agricultural trade,” Caixin Global reported. “Cargoes that Cofco International Ltd. has been putting together could be the first since China re-opened its doors to Argentine corn following drawn-out diplomatic talks, said Gustavo Idigoras, head of Ciara-Cec, a national crop-export group whose members include the major agricultural trading houses.”

Investors looking to diversify their portfolios with assets that are uncorrelated to more traditional stock and bond markets can look to agricultural commodities. Given the aforementioned factors, targeted soybeans and corn exposure may sound like appealing options. Given this, Teucrium has two paths toward easy exposure:

1. Teucrium Soybean Fund (SOYB): It provides similar exposure to what investors could obtain by trading in soybean futures contracts. The fund is also an option for longer-term buy-and-hold investors who want to diversify their current portfolios with commodity exposure. Additionally, if short-term traders want to take advantage of upside in soybean prices, SOYB can serve that purpose
2. Teucrium Corn Fund (CORN): The fund tracks three futures contracts for corn traded on the Chicago Board of Trade. It includes 35% second-to-expire contracts, 30% third-to-expire contracts, and 35% December following the third to expire. The various contract exposures help the fund limit the negative effects of rolling contracts, especially during a market in contango.

Tags: prices, soybeans, U.S., Market, demand, agricultural commodities, China, corn, Brazil