Position: Long corn via the etf CORN
We added a long position in corn yesterday in the Hedgeye Virtual Portfolio via the etf CORN. We entered this position on yesterday’s sell off at $44.38. Keith aptly summarized the opportunity, “Corn is getting smoked today, so we’ll buy back our longstanding intermediate-term bullish TREND case while it’s on sale. KM.”
With the US Dollar making lower-lows, corn continues to ride this currency crash higher, posting an inverse correlation to the dollar of -0.53 over the past three months and -0.88 over a twelve month span. While the US Dollar has fallen -7.5% year-to-date and -11.3% over the past twelve months, corn futures have risen +13.9% and +79.8% over the same durations. Along with a tight supply and demand situation, a major factor behind our bullish corn call continues to be US Dollar weakness and the subsequent run-up in commodity prices; the CRB commodity index has a -0.87 correlation to the greenback and is up +9.2% over the intermediate-term (3M) duration.
Global corn supply remains tight, particularly in North America, where cold and wet weather in the first half of April halted fieldwork and corn plantings in the US and Canada. According to the USDA, as of April 17th, only 7% of the US corn crop was planted, down from 16% at this time a year ago. The USDA has also reported that China is only expected to export 100,000 tons of corn in the 2010/11 season, down from 150,000 tons the prior year; and there is growing concern that China’s surging demand for corn may soon lead them to completely cut exports. Meanwhile, South Korea, the world’s third largest importer of corn, has initiated a grain trading venture in the United States which will boost corn and soybean exports to Korea to 2.15 million tons by 2015.
The big story on the demand side continues to be China’s surging appetite for corn and corn-related products, which, according to Shang Qiangmin, director of the China National Grain & Oils Information Center, “will grow faster than supply in the next 10 years on rising production of livestock feed and biochemicals.” Corn used to produce biochemical products this year will increase to 50 million tons, up ten-fold from a year ago. Further, Oil World has reported that Argentina will export 1-2 million tons of corn to China in June and July, signaling China’s effort to diversify their imports. On a global picture—a bullish one indeed—corn demand is projected to outpace supply in the current season by 7 million metric tons.
On our quantitative set-up, CORN is bullish on the TREND duration, with intermediate-term support at $42.13 and no upside resistance.
Kevin Kaiser
Analyst