Agriculture funds ponder the 14 billion bushel question

Latest projections that the US will have its first ever 14 billion bushel harvest of corn in 2013 has helped drive prices on the Chicago Board of Trade exchange to their lowest since November 2010.

The price fall comes as organisations such as the International Grains Council confirm that this year will see a sharp rebound in output of crops such as corn and wheat in the Northern Hemisphere, following a poor harvest in 2012.

Globally, this recovery means that the world’s overall corn harvest should be high this year, ensuring a level of supply that is currently pushing down prices for forward delivery. One bushel of corn is 56lbs, or 25.4kg.

According to the International Grains Council:

   – With record crops expected in the US, China, and Ukraine, world production is forecast to increase by 10% y/y in 2013/14

   – As consumption is seen rising by 5% y/y, world stocks will be rebuilt in 2013/14, with inventories in the four main exporters forecast at a nine-year high

    – Global trade is forecast at a six-year high, with China a much larger buyer, but is unlikely to match the 2007/08 record as good crop prospects in some countries will cap overall import needs.

Reviewing data from FE for products that invest in agriculture, some 281 funds are identified.

Stripping out specialist products that invest in hogs, wheat, soybeans, sugar or other non-corn soft commodities, leaves some 219 funds.

Reviewing these over a three-year period it is clear that corn has delivered some solid positive returns through products such as UBS CMCI Corn (up about 52%), ETFS Daily Leveraged Corn (50%), Source S&P GSCI Corn Total Return (43%), and ETFS Corn (40%).

However, in the short term it is clear that the asset has lost pace: their respective 3-month returns are -15%, -33%, -17% and -17%. Leveraged corn has, in other words, done worst in the past few months, reflecting the downward price trend.

Corn versus broader agriculture

  1m 3m 6m 1yr 3yr 5yr 10yr
UBS CMCI Corn USD in US -6.78 -15.47 -23.00 -28.35 52.60    
ETFS Daily Leveraged Corn in EU -18.32 -33.46 -42.80 -58.87 45.90 -76.64  
Source S&P GSCI Corn Total Return in US -8.71 -17.25 -23.87 -30.61 43.40    
ETFS Corn USD in US -8.62 -17.09 -23.73 -30.35 40.14 -28.40  
ETFS Leveraged Corn USD in US -17.20 -32.37 -46.86 -55.55 38.29 -74.93  
Robeco SAM Sustainable Agribusiness Equities D EUR in EU 1.29 -1.29 2.36 8.10 28.31    
CFS Wholesale Global Soft Commodity Share TR in AU 3.19 9.17 8.14 27.31 28.29    
First State Global Agribusiness A GBP Acc in GB 0.75 -2.19 -2.69 10.18 28.25    
KBI Inst Agri A EUR in EU -2.49 -8.63 -6.32 -1.70 28.17 34.11  
Allianz Global Agricultural Trends AT USD in US 3.93 -0.75 -9.73 1.44 24.62 -3.29  
Birla Sun Life Commodities Equities Global Agri Ret Gth in IN 0.23 2.41 -4.05 3.91 23.61    
BlackRock Global Funds World Agriculture A2 USD in US 0.25 -1.32 -6.57 4.92 23.07    
Skandia USD Allianz Global Agricultural Trends USD in US 2.48 -4.07 -11.39 -1.67 22.77    

 Source: FE

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