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Corn Hits 7-Week High: ETF in Focus

Zacks Equity Research
The surge in oil equivalent production and crude price realization aid Energen's (EGN) Q3 numbers.

The most active corn futures on the Chicago Board of Trade were up 1.7% on Oct 11, hitting a 7-week high of $3.73. December and March futures both added 6.5 cents to close at $3.6925 and $3.8125, respectively, after the U.S. Department of Agriculture (USDA) said that October’s 2018-19 U.S. corn outlook points toward a lower production yield than expected. Teucrium Corn Fund CORN was up 1.74% on Oct 11 (see: all the Agricultural ETFs here).

The USDA confirmed that "global corn supplies will fall almost 20% from last year, said Sal Gilbertie, president and chief investment officer at Teucrium Trading. Corn is one of the most important U.S. crops and is the most important agricultural product in many states. And overall, the nation enjoys the status of the world’s largest exporter of the staple (read: United States-Mexico-Canada Deal Puts These ETFs in Focus).

"Coupled with President Donald Trump's proposal of only two days ago to raise the ethanol blend in U.S. gasoline" from 10% to 15%, that market sees caution flags "about the size of corn supply surpluses in the future," said Gilbertie.

Per the monthly demand-supply report, USDA hiked its corn crop forecast by 14.778 billion bushels—lesser than September estimates of 14.827 billion bushels and the average yield per acre was downsized to 180.7 bushels per acre from the previously forecast number of 181.8. “The reality of the heavy rains over the past few weeks, coupled with the surprise in the yield, confirms that USDA may even take the yields down further from where they put them today,” Reilly said.

Based on the Sep 28, Stock Grains Report, beginning inventory offsets slower crop yield as supplies are forecast to be at record high levels. Exports are raised by 75 bushels, mirroring U.S. price competitiveness.

Projected feed and residual use has been lowered by 25 billion bushels. Closing stock for 2018-19 has been raised by 39 billion bushels. The projected mid-point for seasonal average staple price was maintained in the range of $3-$4 per bushel.

Corn exports for Russia have been reduced met by an increase for the United States, Serbia and Canada. Import numbers have reduced for Mexico and Israel. Foreign corn ending stocks are up mostly reflecting increases for Mexico, Egypt, and Iran that are partly offset by reductions for South Africa and Turkey (read:3 Globally Winning ETF Areas of Q3).

Global corn stocks were up by 2.3 million from the previous month at 159.4 million tons. The forecast for Global coarse grain production for 2018-19 was down by 3.8 million tons to 1343.4 million tons.

With this surge in corn futures, investors would be keen on considering the only ETF on it:

CORN

The fund provides investors an unleveraged direct exposure to corn without requiring a futures account. The fund looks to reduce backwardation and contango. The fund looks to reduce contango by spreading out exposure across the curve, as opposed to just rolling over from front month to front month. The fund will be using the second-to-expire contract (35%), the third-to-expire contract (30%), and the December contract that is following the third-to-expire contract (35%). AUM is $68.4 million and expense ratio is 1%. The fund has lost 2.6% year to date and 5.1% over the past year. It has a Zacks ETF Rank #4 (Sell) with a High risk outlook.

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TEUCRM-CORN FD (CORN): ETF Research Reports
 
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