The second largest corn (CORN, quote) importer, China, sees corn imports surging to a record 28 million metric tons by 2015 -16, reflecting roughly a 700% increase in the next few years. Part of this is due to the likelihood of crop failures, but the rest is squarely in the lap of a growing middle class. Analysts are looking for a local harvest of around 187 million tons next year — about 6.5% shy of projected demand. Imports in 2011-2012 are on track for a 4 million ton increase and progressively increasing to 13 million tons by 2012-2013.
China is likely going to be forced to increase its agricultural imports to help feed its 1.3 billion people and ease pressure on the environment.
The country’s looming corn deficit should support current prices as well as increase global food costs. China will require at least 50 to 60 million tons in reserve to order to prevent supply disruptions.
This is music to U.S. farmers’ ears, but May’s contract for corn was basically flat in Chicago today and is continuing its muted action into overnight trading. Global stockpiles may shrink to 125.3 million tons by December — the lowest year-end level in five years, according to the U.S. Department of Agriculture.
Traders can gain exposure to the corn futures market via the Teucrium Corn Fund ETF (CORN, quote), which seeks to replicate — net of expenses –the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for corn that are traded on the CBOT.
These contracts are, in order of weight: the second-to-expire CBOT corn futures contract, the CBOT corn futures contract expiring in the December following the expiration month of the third-to-expire contract and the third-to-expire CBOT corn futures contract. For example, if the leading month is May, CORN will invest in June, December and July futures.
CORN’s managers may also invest in corn-based swap agreements, short-term obligations of the US government and/or cash equivalents.
Commodity ETFs may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
They may also be subject to greater volatility than traditional ETFs and may not be suitable for all investors. Unique risk factors of a commodity fund may include, but are not limited to the fund’s use of aggressive investment techniques such as derivatives, options, forward contracts, correlation or inverse correlation, market price variance risk and leverage.